Softening of P/C Commercial Markets to Continue: Fitch

U.S. commercial insurance market segments, including directors and officers (D&O) liability insurance, are continuing to soften and are likely to stay on this path for the near-term even as several large competitors merge, Fitch Ratings says.

Premium rates in property lines have been declining for some time in response to a lack of large loss events. Fitch said it expects that competitive forces will likely drive prices lower in more casualty/liability lines, in part due to past underwriting success.

Fitch noted that the latest Quarterly D&O Pricing Index report by Aon Risk Solutions indicated that pricing on D&O programs that renewed in the third quarters of both 2015 and 2014 is 10.1 percent lower than pricing on the comparable group a year ago. Broker Willis recently projected that public company and financial institution company D&O renewal rates will be flat to slightly down in 2016. Excess rates are projected to fall by 5 to 15 percent next year. However, weaker performing privately held and non-profit business is still seeing rate increases.

Fitch’s analysis is consistent with most surveys. The Council of Insurance Agents & Brokers third quarter survey showed a continued decline in commercial P/C rates across all account sizes and most lines. This was consistent with the trend of gradually declining rates observed since the first quarter of 2013. CIAB did find, however, a slight uptick in rates for commercial auto and flood.

Also, broker Marsh found that while the third quarter marked the tenth consecutive quarter with declining rates in all commercial lines taken together, cyber insurance has been seeing consistent and large rate increases, averaging more than 15 percent in the U.S.

According to Fitch, D&O underwriters have benefited from relatively stable claims trends in recent years, particularly regarding claims relating to securities class action filings. Underwriting performance slightly deteriorated in 2015 with a reported statutory direct loss ratio of 51 percent for the industry at Sept. 30, compared with 49 percent in full year 2014. Fitch said that upward D&O rate movement is unlikely unless there is considerable weakening in underwriting performance.