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Abundant Capital Restrains Market Firming Amid Property Rate Hikes

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February 21, 2018

According to the latest Willis Towers Watson Property Market Update detailing market conditions for North American insurance buyers, commercial property insurers are seeking double-digit rate hikes on catastrophe-exposed insurance programs following 2017's record natural catastrophe-related losses. Nonetheless, abundant risk transfer capacity in the form of traditional and alternative capital is dampening the potential for widespread market firming. 

Organizations with catastrophe-exposed properties that have suffered losses are facing the steepest rate hikes, between 20 percent and 25 percent, while catastrophe-exposed programs without losses are likely to see price increases of 10 percent to 20 percent. Meanwhile, non-catastrophe-exposed programs can expect renewal pricing to be flat to +5 percent.

According to the report, 2017's global natural catastrophes have resulted in estimated insured losses of $143 billion thus far, topping the previous record of $120 billion in 2011. However, the report points to strong reinsurance market industry capitalization and the continued appetite by alternative capital providers as critical factors in helping the industry absorb recent losses without major balance sheet impairment. This scenario is also "dampening the ability of underwriters to attain significant rate uplift and will diminish the likelihood of a sustained marketplace firming," the report said.

While market reaction is not producing rate increases as steep as initially feared, buyers still face challenges, the report noted. For example, property rate increases are expected to vary significantly from the mean, and pricing will depend on an organization's specific exposure, loss history, and occupancy. For organizations approaching insurance program renewals, "aggressive marketing" of their insurance programs may be necessary and may involve displacing incumbent insurers to attain the best rates and conditions.

The report said, "Make no mistake, the marketplace is still in a state of some flux and should not be considered easy. While the rate increases that we've seen and that we predict are modest compared to some initial doomsday scenarios, they are still challenging for buyers. Moreover, there is some bleeding of the market-firming into other lines of insurance, which will also challenge buyers. That said, we do not see property rate increases escalating beyond our forecasts, and we think the duration of the current conditions will likely be limited to a few quarters."

KEY PRICE PREDICTIONS

Property  
Non-CAT-Exposed Risks  Flat to +5%
CAT-Exposed Risks  +10% to +20%
CAT-Exposed with Losses  +20% to +25%

The Property Market Update is an addendum to Willis Towers Watson's 2018 Marketplace Realities report, which was published in November 2017. A free copy is available on the Willis Towers Watson website.

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