“We expect P&C insurance premiums for commercial properties, including multifamily, will keep rising through 2023,” suggests S&P Global Ratings credit analyst Raymond Kim.
Kim’s comments stem from a report in which S&P Global Ratings analysed 2020-2022 expense trends on 60 loans on U.S. affordable housing properties receiving low-income housing tax credits.
Its review found that from 2020 to 2022, expenses for rated multifamily affordable housing properties in the U.S. increased by a higher percentage year over year than revenues.
S&P Global Ratings says that property insurance premiums are an increasing percentage of total expenses, a trend that will likely continue to accelerate.
According to the rating agency, this is partly due to the material increases in insurance claims resulting from the greater frequency of weather-related damages and the inflation-affected cost of repairs.
“The U.S. P&C market has reported multiple years of elevated weather-related losses, highlighting the burgeoning threat of climate change and the growing importance of secondary perils like convective storms, wildfires, and flooding that exacerbate losses,” explains the firm.
S&P states that the properties with the largest increases in insurance expenses are located in diverse markets throughout California, Connecticut, New York, Virginia, and Washington.
Most property insurers obtain reinsurance to offset the costs of major events such as named hurricanes, however, S&P notes that reinsurance costs have also risen due to widespread weather-related events globally.
S&P believes P&C insurers might reduce their use of reinsurance, which could pressure their premiums by exposing earnings over time to natural catastrophe loss.
The rating agency concludes, “Although we have seen steady increases in expenses across rated low income housing tax credit properties, property owners have been able to raise rents to levels that have maintained strong debt service coverage.
“We will continue to monitor the insurance sector to identify any trends such as providers exiting markets or implementing severe increases in deductibles and premiums that could affect rating stability.”
