USI Report: Unclear How Long Increased Property Pricing Will Persist

House shown with rising stacks of coins alongside calculator and pie chart

February 20, 2018

House shown with rising stacks of coins alongside calculator and pie chart

In its latest market report, 2018 USI Insurance Market Outlook, USI provides perspectives on the importance of last year's natural disasters and other market pressures. The report gives viewpoints on multiple factors, including market capacity, costs of coverage, and how the increased use of underwriting data analytics impacts insureds.

The report details insurance market expectations for 19 coverage areas, including insights on specific industry markets. These coverage areas are shown in the table below.

 Property   Environmental Private/non-profit management liability Kidnap, ransom and extortion Commercial Surety
 Casualty–liability  Aviation Employment practices liability Representations and warranties Contract Surety
 Workers compensation Public company directors' and officers' liability  Crime Technology and Professional Errors and Omissions Commercial construction project risk
 International  Fiduciary liability  Medical malpractice Network Security and Privacy Risk (Cyber)  

In the report, USI reveals that it expects that loss results arising from 2017 catastrophe events will "mostly be a short-term earnings event compared to a more meaningful capital erosion event." Accordingly, USI does not "expect any dramatic increases in casualty rates except for guaranteed-cost buyers with poor loss histories and insureds with medium-to-large commercial auto fleets." However, per the report, a commercial insurance company executive warns that "[in some markets] the effect of recent property losses on earnings will expose underwriting weaknesses in the other lines."

Nevertheless, the report reveals that, as many commercial insurers face slim profit margins with slowing reserve releases, it is unclear how long increased pricing in property and affiliated lines will "persist before capital sitting on the sidelines is deployed to win new business" and whether "the impact of property losses [will] bleed over to casualty and other lines of insurance."

The report includes numerous property and casualty (P&C) market factors and trends for 2018, including the following observations and questions surrounding reinsurance and alternative capital.

  • How will alternative forms of reinsurance capital such as the catastrophe bond market be impacted by the 2017 catastrophic events and how will their appetites change going forward?
  • After 19 consecutive quarters of soft-market pricing, it is reasonable to assume that most insurers will not be offering rate reductions and will likely be looking to increase rates across their portfolios.
  • The availability and cost of facultative reinsurance are in flux as well. As these costs potentially increase for property insurers, they will certainly look to pass on these costs and more restrictive terms.
  • Reinsurance and excess markets for medical malpractice continue to be strong, especially for organizations with good experience.
  • Concerns with property and casualty claims that will be incurred from Hurricanes Harvey, Irma, and Maria and the Mexico earthquakes loom as insurer reserves and reinsurance could potentially have an impact on surety.

Read the 2018 USI Insurance Market Outlook.

February 20, 2018