Abundant insurance and reinsurance market capacity, assisted by the influx of alternative capital, coupled with a lack of large loss events, has contributed to a decline in global insurance rates for the ninth quarter running, according to analysts at Marsh.
“Competitive market conditions, characterised by an abundance of global capacity and a lack of large insured loss activity resulting in reported improved underwriting results with favourable combined ratios, helped account for the ninth consecutive quarter of rate decreases,” noted Marsh.
Commercial insurance rates decreased in various geographies and across the majority of
large business lines during the second-quarter of 2015, as the competitive market environment continues to challenge firms’ profitability.
With pricing in the global property catastrophe reinsurance market remaining pressured owing to a lack of major loss events, a glut of capital and heightened competition, reinsurance market participants are increasingly seeking to access the returns of primary business lines.
As a result, notes Marsh; “Surplus levels typically remained at or near record levels, helping to drive the competitive marketplace during the second quarter. Alternative capital continues to flow into the industry and is creating an additional source of risk transfer, fuelling competition, and helping to drive rates lower.”
Marsh Global Industry Specialties and Placement leader, Dean Klisura, also commented on the abundance of capital; “While there are some insurers exiting certain lines of business, overall market capacity remained abundant during the quarter.
Aiding the market’s overall capacity has been the willingness of companies to consider capacity outside their regional geographies. This strengthens the global nature of the marketplace.”
The observation from Marsh regarding the inflow of alternative capital in the global commercial property and casualty (P&C) space isn’t surprising, with other industry analysts, including MarketScout and Keefe, Bruyette & Woods (KBW), noting the pressures on primary lines’ rates in recent times has been exacerbated by the flood of third-party reinsurance capital entering the sector.
Furthermore, the benign catastrophe loss trend, which exacerbates the surplus of capacity, has continued, “helping drive insurer profitability and removing near-term catalysts for increased rates,” notes marsh.
Underlining this point, Bowring Marsh Chief Executive Officer (CEO), Andrew Chester said; “Capacity in the international marketplace remains abundant and, in certain cases, there is an over-subscription of capacity for limits being purchased, both of which continue to drive a reduction in rates and provide additional limits of coverage.” Continuing to warn that it “is anticipated that, unless there is a major catastrophe in the region, the next 12 months will continue to bring favourable market conditions for clients.”
Despite the negative market commentary and outlook surrounding Global commercial P&C rates in Marsh’s Q2 2015 ‘Global Insurance Market Quarterly Briefing,’ emerging, specialty and niche business lines can offer market players with an additional, diversified source of revenue, should they be willing and able to take on the risk.
Marsh highlights this, stating that while rate decreases were experienced across most major business lines, “notable exceptions were seen in specialised coverages led by a firming cyber insurance market.”