Recent consolidation among commercial property/casualty insurers has not outdone the effects of a softening market, and independent insurance agents can expect widespread rate decreases in the coming year, according to a recent report from Willis North America.
Analysts with the risk advisory and brokerage firm released their outlooks for a number of lines in its “Marketplace Realities 2016” report, while commenting on the shrinking field of carrier partners after a year that saw several large acquisitions, including that of ACE Group and
Chubb Corp.
“In the short run consolidation shrinks the market. As two companies become one, the marketplace offers one less piece with which to solve the puzzle of an insurance program,” said Matt Keeping, Chief Broking Officer with Willis. “But a smaller market with fewer, larger players also opens up the field to new comers that can focus on smaller, specialized niches in areas of potential growth.”
With that in mind, Keeping and other Willis analysts expect rate decreases for the following 10 lines in 2016:
- Property – -15% to 12% for catastrophe-exposed risks and -12.5% to -10% for non-catastrophe
A large amount of capital has translated to overcapacity in the property market, in which insurers continue to increase their offerings and new players enter an already crowded market. Insurers are attracted by the continued profitability of this line, which produced a combined loss ratio of 97.2% in 2014. Habitational risk is one exception.
- Casualty – -5% to flat for primary casualty and -10% to flat for umbrella and excess
Underwriting discipline will prevent a large reduction in casualty rates, but a number of market forces are creating downward pressure on both primary and umbrella and excess casualty. Collateral requirements continue to easy on primary programs, and the majority of insurers are now accepting sureties to satisfy these requirements. The umbrella market, meanwhile, is more competitive at attachment points reaching the $5 million level.
#pb#
- Aviation – -20% to -15% for airlines, -10% to flat for product manufacturers, -5% to flat for airports and municipalities, -20% for general aviation and -20% to flat for financial institutions and lessors
Despite a bevy of recent aviation losses, pressure is on insurers to maintain market share in this space. Combined with an abundance of capacity, rates and premiums are trending downward. One-year policies are at historic lows, and standard GEO satellites are now attracting premium rates of 0.5% or less.
- Energy – accelerated softening for downstream, decelerated softening for upstream
Only one major loss has affected the books of most insurers, and 2015 is likely to yield underwriting profits for this class. Willis expects “the scramble for premium income and market share will likely intensify” going into the new year, particularly among regional insurers that are now pursuing a larger footpring.
- Healthcare Professional Liability – -5% to flat
Willis expects a soft to flat market through 2016 with accounts with good loss experience even seeing low double-digit reductions. This competitive line has seen several recent market entrants keeping prices downward, and the advent of the Affordable Care Act has not yet affected claims.
#pb#
- Marine – -10% to flat
An increase in international trade volumes is keeping premiums for cargo, hull and marine liability low, though global political unrest may expose gaps in coverage for terrorism and political violence. Insurers may also be looking for increases in renewals for cat-exposed accounts.
- Political Risks – -5% to flat
Many private market insurers consider Russian exposure as among the largest for this line, and as such, most markets continue to be off-risk for new Russia deals. Markets are also considered “essentially closed” to risk in eastern Ukraine, and are looking at western Ukraine on a case-by-case basis, thus limiting exposure.
- Surety –Flat for contract and -5% to flat for commercial
New players continue to enter an already competitive market, particularly with ACE’s acquisition of Chubb. The recovery of the construction economy is also fueling this trend, pushing surety to a focus on commercial accounts.
- Terrorism – -15% to -5% for non-Tier 1 and -10% to flat for Tier 1
The reauthorization of the Terrorism Risk Insurance Program at the beginning of this year, coupled with the lack of major losses in the West, has led to lower premiums for all accounts apart from those in major metropolitan areas.
- Trade Credit – -5% to flat
Abundant capacity is available for this line as soft market conditions linger for trade credit rates and retention/deductible levels. Capacity for Latin America, however, is more scarce.
The report, released annually by Willis, aims to support risk advisors and insurance brokers to help clients “bring together the pieces of their risk transfer puzzles.”
