2017’s ‘recipe for disaster’ set to turn commercial P&C market: CIAB round-up

By Rebecca Bole on October 11, 2017

A confluence of weather-related disasters, economic factors and market conditions are likely to drive the commercial P&C market to increase rates next year, according to executives at the CIAB Industry Leader’s Forum (ILF).

A spate of catastrophe events in the US, including hail, fire, convective storms and this season of hurricanes are expected to compound a sustained period of rate reductions across P&C lines of business to create a hardening market in the property sector – and beyond into casualty lines – many executives said.

Advisen canvassed opinion from a number of industry executives on expected market conditions for 2018. The ILF conference was taking place in Colorado Springs, CO, just as Hurricane Nate was making landfall and as news was breaking of the wildfires in Northern California. Please note that in such a dynamic natural catastrophe season, comments on market conditions may appear outdated very quickly. These interviews took place between Monday October 2 and Monday October 9 2017.

Of course, it is too early to confirm actual loss costs from recent natural catastrophes, as many carriers and reinsurers have not yet reported numbers. However, the expected range of insured losses from the events varies from $100 billion to $200 billion, according to various cat modelers.

At the low end of this range, the insurance industry response may be contained within the property market, with insurers suffering a short-term hit to their profit-and-loss (P&L) accounts, rather than significant capital erosion (what many are calling a ‘balance sheet event’).

Brokers, on the whole, believed a hardening market would be contained within the property sector:

Marc Cohen, president of HUB International, said: ”The carriers are still forming strategies to deal with their cat exposures and how they will price for policies in the future. It’s still early in the game, but at this point we are seeing rates in cat areas increase in the range of 3 to 10 percent. But, increases could be more based on the individual dynamics of the risk.”

Mike Pesch, president of US Retail P&C at Arthur J. Gallagher said to expect “some hardening in the micro-geographies” of Houston and South Florida – areas that until recently had not experienced major storms. “We will see underwriting and pricing challenges in those areas, but we can’t say ‘hard market’ at this time,” Pesch told Advisen.

Willis Towers Watson Global Head of P&C, Eric Joost, said the market had so far behaved “in an orderly manner,” which he considered a “real compliment to the industry.” Joost added that although he thought recent hurricanes would be a “P&L event” for the property market, “there’s always a possibility” the repercussions could spill out into the casualty sector as well.

Mike Rice, CEO of JLT Specialty, placed the recent natural catastrophe events into a wider context of rising frequency of D&O and severe cyber losses, noting there was “very little margin for error” in the marketplace. Rice said no one had enough information at the moment to accurately predict natural catastrophe losses, but if losses rose to the higher end of estimates, then he predicted a “capital event” for the industry.

“If you take $100-200 billion of capital out of the market right now, you will see an immediate reaction,” Rice said. He reported carriers “taking a closer look” at loss-exposed sectors. “Flat is the new floor,” he said, while the market waits for the losses to develop and reinsurers to react through the January 1 renewal season.

However, he added it was not all “doom and gloom” for the insurance buyer, as there was still capital waiting to deploy into the insurance sector, helping to moderate rate increases.,


This story in an excerpt of the original. The content originally appeared in Professional Front Page News.
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Rebecca Bole is EVP & Editor-in-Chief at Advisen. She has nearly 20 years of experience in the international insurance markets, both as an underwriter and a journalist. Contact Rebecca at [email protected].