Q1 2017 marked the sixteenth consecutive quarter commercial insurance rates declined on average, although decreases did moderated across all coverage lines for the fifth quarter running. Despite U.S. cyber liability rates falling for the first time since 2014, U.S. casualty renewal rates actually increased in Q1 2017, according to broker Marsh.
Persistent industry headwinds underlined by overcapacity and the highly competitive underwriting environment saw commercial insurance rates decline by an average of 2.3% in the first-quarter of 2017. This is compared to -3.1% in Q4 2016 and -3.8% in Q1 2016, signalling the fifth consecutive quarter that commercial insurance rate declines have moderated, explains Marsh in its latest Global Insurance Market Index.
When compared with the previous quarter all coverage lines saw rate declines moderate in Q1 2017, with the greatest moderation being witnessed in global casualty, where declines decelerated from -1.9% to -0.6%.
Marsh explains that the increased moderation of global casualty rates was largely driven by U.S. casualty pricing, which actually increased by an average of 0.4% in Q1 2017 on the back of higher “auto liability pricing and the continued moderation of workers’ compensation pricing decreases.”
This represents the first time since 2014 rates have increased in the U.S. in property and casualty (P&C) lines, says Marsh.
At the same time, U.S. cyber liability rates actually decreased in Q1 2017 by an average of 1.7%, which is the first time rates in this coverage line have declined since 2014, driven by higher capacity levels as new players enter the market and existing players raise limits.
The competitive commercial insurance pricing environment has contributed to an industry combined ratio over 100%, and Marsh explains that the last time this happened, in 2012, surplus capacity was 20% lower than it is currently.
The oversupply of capacity from traditional insurers and reinsurers combined with the increasing presence of alternative capital suggests that while rate declines are continuing to moderate, on average, across all business lines, the pricing cycle might not be as near to the bottom as some would hope.