Figures released by WTW in September confirmed what has been clear for a while: price increases are slowing significantly for U.S. commercial insurance.
An American Flag on the U.S. Capitol Building is seen in Washington, U.S., August 31, 2023. REUTERS/Kevin Wurm/File Photo
The broker’s commercial lines pricing survey showed that rates increased 3.8% in the second quarter compared with 5.3% in the first quarter of this year and 5.6% in the fourth quarter of 2024.
The same trend has also been identified by others tracking U.S. commercial pricing.
The Council of Insurance Agents Brokers’ market survey showed a 3.7% increase for Q2 compared to 4.2% in Q1 of this year, while Novatae’s commercial market barometer showed a 2.8% increase compared to 3.0% in Q1.
Marsh’s market index showed a contrasting trend for U.S. commercial insurance rates but the results will hardly provide any cheer for carriers, with the flat Q2 reading a slight improvement from the 1% drop in Q1.
A LOT OF CAPITAL CHASING PROPERTY BUSINESS
A big factor in the slowing is property insurance pricing coming down after the recent hard market.
This was a big topic of conversation during Q2 earnings calls.
For example, Chubb chairman and CEO Evan Greenberg said his company is beginning to walk away from U.S. large-account property where necessary after pricing dropped more than 12% in the second quarter, on both admitted and E&S business.
“A lot of capital is chasing the property business, and prices are softening, while terms and conditions remain steady,” he said.
Greenberg said this contrasts with continued increases for middle-market and small commercial business.
“Property pricing was down more than 12% in large-account business, both admitted and E&S, and it was up over 8% in middle market and small commercial,” said Greenberg.
AIG chairman and CEO Peter Zaffino said his company is aiming to maintain its U.S. property portfolio despite the rapid softening of pricing in the segment. He suggested the insurer benefits from its restructuring actions and use of low-attaching catastrophe reinsurance.
“Even in the current environment, our portfolio has been performing exceptionally well across retail property and Lexington wholesale large account … and Lexington middle-market property,” he said.
AIG reported Q2 pricing decreases of 11% across retail property and Lexington wholesale large account, while its middle-market wholesale business was largely flat.
But Zaffino put this against cumulative rate increases in retail property and Lexington wholesale large-account property of 135% and 120%, respectively, since 2018, with Lexington middle-market property achieving a cumulative rate increase of 90%.
WR Berkley president and CEO Rob Berkley highlighted the decoupling of product lines in the pricing cycle and said property rate adequacy remains in a “good place” despite heightened competition.
“The larger accounts, particularly shared and layered … is where greater competition is. (On) the smaller accounts, it’s not that there isn’t competition, but it pales in comparison to the larger end of town,” he said.
Berkley also focused on dynamics in the MGA and broader delegated authority space, suggesting that there is a lack of alignment “between those with the pen and those with the capital” in many cases.
D&O MAY HAVE REACHED A FLOOR
In contrast to the rapidly softening property market, it appears the D&O market may be moderating following years of price decreases.
“It would seem as though the public D&O market is beginning to find some sense of bottom, (while) private and non-for-profit D&O remains particularly competitive as … there is an MGA component to it,” said Berkley.
The WR Berkley CEO added: “All we need to do is get the SPAC market going again and then we can have a party.”
Similarly, Axis CEO Vincent Tizzio said public D&O pricing was “virtually flat” in Q2, indicating that “the potential floor has been reached”.
Berkley also commented on casualty, stating there is “opportunity to get the rate that the product line needs”.
“It is pronounced both in the primary casualty as well as the umbrella and excess,” he added.
Liberty Mutual’s Global Risk Solutions president Neeti Bhalla Johnson said the carrier is seeing increasing litigation frequency and elevated loss trends across the U.S. casualty market. She said Liberty Mutual is “responding appropriately”.
She continued that auto, umbrella and excess lines “demonstrated strong rate increases throughout the quarter”, reaching mid-double digits, while primary general liability rate change remained steady in the quarter at mid-single digits.
“However, excess and umbrella rate in our estimation is not keeping pace with loss trends due to the amplified effects of legal system abuse, including longer loss development periods and primary coverages,” she said.
“In addition to pricing actions, therefore, we are also adjusting our risk appetite.”