Property Insurance Prices Continue Easing

NEW YORK CITY—Look for pricing on commercial property insurance to continue easing in 2015, says Willis Group Holdings plc. It's part of what the risk advisory firm sees as improving pricing conditions across the commercial insurance spectrum.

Willis expects commercial property rates to fall by an average of 10% to 15% for both non-catastrophe-exposed and catastrophe-exposed risks. Property rates have been falling for several consecutive quarters and Willis says it doesn't see an end to this trend.

Helping drive these declines is an increase in capacity. “Many insurers increased their CAT capacity in 2014 and refused to be marginalized by larger insurers,” according to Willis. “Insureds had many options in 2014 and should enjoy the same in 2015.”

Aside from the Napa, CA earthquake that caused an estimated $1 billion of insured losses, domestic losses year to date have been “benign,” the firm states. “As of this writing, no major hurricane has hit the mainland US since Ike in 2008 and none have hit the vulnerable peninsula that is Florida for nine years.” Willis points out that wind speeds for Superstorm Sandy in October 2012 fell just short of hurricane strength when the storm made landfall in the Sunshine State, although it was a different story farther north. Citing data from SwissRe, Willis notes that worldwide property losses totaled $21 billion for the first six months of this year, compared to $25 billion from the same period in 2013 and a six-month average of $27 billion over the past decade.

Further, Willis says the influx from the capital markets has had an impact on the reinsurance market, “as insurers have been able to replace the highest priced reinsurance capacity with this alternative capacity.” According to a recent report from Zurich Insurance Group, the combined ratios for top reinsurers averaged 87 compared to 86 the year prior. So in spite of falling rates and expanded terms and conditions, “the reinsurance market continues to make decent returns due to the favorable loss experience.”

Although various factors point to continued price softening, Willis predicts that further price reductions will be “less pronounced” next year. Reinsurance prices are only expected to slide another 5% to 10%.

Even as rates have fallen, though, Willis believes that most property insurers should see “a reasonable return” on their respective portfolios, “albeit not to the levels achieved in 2013.” According to a Fitch Ratings report, the '14 midyear combined ratios for the top insurers averaged 94.

The one exception to the rule, says Willis, is habitational risk, “especially those exposures close to the US coastline. There are a limited number of insurers writing these risks on a primary basis and, accordingly, this sector remains challenging.”

There's also the area of terrorism risk insurance. If Congress does not reconcile the competing versions of House and Senate bills to reauthorize the Terrorism Risk Insurance Act of 2002, Willis says, “rates could rise sharply.”