US property insurance: market update

US property insurance: market update
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While some segments have seen large rate increases, the market as a whole shows no sign of turning.

There has been an uptick in US property insurance rates since the end of 2017. Cat-exposed areas have experienced the most pronounced increases, as was expected following the 2017 US hurricanes Harvey, Irma and Maria (HIM).

Rates have already started to level out, however, and most critically there is no worldwide shortage of property insurance capacity which, in a traditional hardening market cycle, would be the main “trigger point” for higher rates and diluted policy coverage.   

Rates have already started to level out and, most critically, there is no worldwide shortage of property insurance capacity.

US property rate increases at 1 January were broadly in line with previous predictions:

• CAT-exposed with loss: 20% rate increases and higher (in some cases considerably higher), with historically unprofitable property accounts facing the biggest rate increases.

• CAT-exposed: 10–20% rate increase.

• Non-CAT property: 0–10% rate increase.

Latest estimates put the total insured losses for 2017 at approximately $140bn, with total economic losses at $350bn.

When HIM first hit, as well as the two earthquakes in Mexico and the California wildfires, a fundamental alteration to the insurance market seemed conceivable. In the end this did not materialise. One of the main contributing reasons for this was the way many direct insurers had structured their reinsurance protections: many took increased net retentions, while there were others who took advantage of the less traditional, collateralised capital markets. This resulted in less of a reinsurance pricing increase than had previously been expected at 1 January and again at 1 April.  

In turn, it was the Direct and Facultative (D&F) property market that has borne the main brunt of the 2017 losses.     

Difficult industry classes

The US multi-family/habitational segment has faced a significant shortfall in global insurance capacity.

Certain areas experienced particularly sharp rate increases. The US multi-family/habitational segment has faced a significant shortfall in global insurance capacity. Particular areas of focus in this segment have been assets located in the state of Texas, which have seen severely impacted by multiple hailstorms. Even before the 2017 natural disasters, rates were under considerable pressure (with combined net loss ratios exceeding 100%); this coupled with a shortage of capacity has resulted in certain insurers exiting this class altogether.

The food industry segment has also been severely affected, with several major fire losses recently occurring worldwide, particularly in Australia, and has started to experience an uplift in property rates following many years of ultra-competitive rates.

Looking ahead

A catastrophe season similar to that in 2017 could well result in a broader hardening of rates. Many insurers have experienced poor loss ratios in recent years.

Ultimately, it would require an increase in interest rates (which would render the insurance market less attractive to capital market investors) to significantly affect available capacity.

The upward pressure on rates may increase insurers’ focus on T&Cs, however, possibly resulting in a tightening of contract conditions and policy wordings.

Ultimately it would require an increase in interest rates to significantly affect available capacity.

At renewal, companies can expect insurers to apply increased underwriting stringency and to work harder to differentiate between companies with better or worse risk profiles. This will present an opportunity for companies with a good risk profile, risk management and claims history to distinguish themselves and thereby secure a better deal.

To achieve this, companies should work closely and early on with their broker so that they can effectively sell their risk at renewals. There are unlikely to be many rate reductions on renewal, but companies can mitigate any increases by demonstrating the quality of their risk.

For more information, please contact Simon Scholfield on:

simon.scholfield@uk.lockton.com

+44 (0)20 7933 2632