CEOs bullish on US commercial insurance rates despite Q2 moderation

Reinsurers will be closely monitoring underlying insurance rate trends as the key 1 January renewal date nears. For US commercial pricing, deceleration has become a common phrase to describe the current environment. 

An analysis of indexes maintained by brokers and other organisations suggests rate increases peaked in the third or fourth quarter of 2020. 

For example, Marsh’s Global Insurance Market Index shows that US rates overall were up 12 percent in Q2. This was down from 14 percent in Q1, 17 percent in Q4 2020, 18 percent in both the third and second quarters of 2020 and 14 percent in Q1 2020.

Willis Towers Watson has not yet released Q2 data for its Commercial Lines Insurance Pricing Survey, but for the first quarter of this year it showed rates were up just below 8 percent. That was down from rates being up around 10 percent in the preceding three quarters with a peak of above 10 percent in Q4 2020. 

The Council of Insurance Agents & Brokers reported near the end of August that overall commercial property casualty prices increased for the 15th consecutive quarter, rising 8.3 percent. But that was the third quarter in a row that the increase had been lower than the preceding quarter’s increase since the peak of 11.7 percent in the third quarter of 2020.

Only cyber bucked that decelerating trend in Q2 2021, with the average premium price increase for that line coming in at 25.5 percent, up from 18 percent in Q1 2021.

In addition, MarketScout’s data for Q2 showed that the composite commercial lines rate increase was 5.9 percent, down from the 7 percent recorded during the first quarter 2021 and the 7.1 percent in the fourth quarter, which had been up from 6.3 percent in Q3 2020.

The Dallas-based insurance distribution and underwriting company has also provided monthly feedback on rates, with its barometer rising by 6.7 percent in July, compared to 6.8 percent in June and 7.0 percent in May. The fall in July reflected decelerating professional liability and excess/umbrella rate increases. 

KBW equity analyst Meyer Shields commented after MarketScout released its data for July: “While rate increases appeared to have peaked in December 2020, we still expect commercial lines’ rate increases to generally persist, including (mostly slow) deceleration into 2022 as more carriers realise adequate returns given already-compounding rate increases.” 

Tempering of rate is “appropriate”

In second-quarter results releases and earnings calls, insurance leaders confirmed the decelerating trend. 

Insurance giant AIG reported that North America commercial general insurance rates were up 13 percent in the second quarter, with CEO Peter Zaffino on an earnings call stating that the most notable improvements came in excess casualty, which was up 20 percent, Lexington Casualty, which was up 19 percent, and Lexington wholesale property, which was up 15 percent.

The level of increase was down from 15 percent in the first quarter, which itself was down from 21 percent in the fourth quarter of 2020.

Travelers’ reported renewal rate change, stripping out the impact of exposure change, was 7.1 percent in Q2, down from 8.3 percent in the first quarter of this year.

On an earnings call in late July, president of business insurance Greg Toczydlowski noted that the renewal rate change for the quarter was well in excess of loss trends.

“The moderation comes after three years of very strong compounding rate increases in these two businesses,” he said. “So the tempering of rate is appropriate considering the improved return profile. Also, while renewal rate change was down sequentially for those businesses, rate increases were still in double digits.”

WR Berkley president and CEO Robert Berkley also stressed the positives despite its average Q2 rate increase excluding workers’ compensation of 9.7 percent being down from 12.1 percent in the first quarter and 15.4 percent in the fourth quarter of 2020. 

“When we look at the major product lines, with the exception of workers’ compensation, all of them continue to get rate increases that outpaced our view of loss trend,” Berkley said.

Chubb chairman and CEO Evan Greenberg expressed confidence that rates will continue to exceed loss costs, and suggested that it is more instructive to look at the insurer’s cumulative price increases. 

Greenberg noted that Chubb’s overall 13.5 percent increase in North America commercial rates – though down from 14.5 percent in Q1 2021 – was on top of a 14.7 percent rate increase last year for the same business, making the two-year cumulative increase over 30 percent. 

“And, remember, in North America rates have been rising for almost four years. However, they have exceeded loss costs for only about two years now. Loss costs are currently trending about 5.5 percent and vary up or down depending upon line of business,” he said.

Discipline to “persist for several more quarters”

The consensus among insurance leaders was that there was still strong momentum behind pricing. 

Axis Capital president and CEO Albert Benchimol expects favourable market conditions in the Bermudian’s insurance business to be sustained “well into 2022”.

Benchimol reported that all lines of insurance were generating rate increases at or above loss-cost trends. Axis’ second-quarter average insurance rate increase globally was just over 14 percent, up more than 1 point from the first quarter of the year and roughly flat with the prior-year period.

“We continued to see a dynamic market responding to loss trends and supply and demand pressures with some lines accelerating their rates of improvement, while others have crested, and some exhibiting a deceleration in the pace of rate hikes,” he commented.

On CNA’s second-quarter earnings call, chairman and CEO Dino Robusto noted that the insurer is achieving “strong” rate increases where they are needed most, including in umbrella, financial and management liability, auto and property.

CNA’s commercial rates were up 8 percent in Q2 2021, down from 11 percent in Q1 and 10 percent in Q2 2020. 

Robusto highlighted “the very real headwinds” that persist such as social inflation, the low interest rate environment and elevated catastrophe activity, and stated: “I believe price increase discipline will persist for several more quarters.”

“More rate is therefore still needed,” Robusto said. “And notwithstanding a 1 point moderation in price increases in the first and second quarters, we are securing strong written rate increases where needed most.”