U.S. P/C Rates Still Increasing
Although the events of Sept. 11 accelerated the increase in U.S. commercial real estate insurance premiums, property and casualty insurance costs had already begun rising in 2000, independent of terrorism-coverage costs, according to analysts from Standard & Poor’s. Over the past seven months, P/C insurance premiums have increased by 10 percent to over 300 percent in some cases, and S&P expects these rates to continue to increase on renewals through the remainder of 2002. However, the increases, which are being driven by shrinking capacity, have not in and of themselves materially impacted net cash flow or directly resulted in any downgrades of rated commercial mortgage-backed securities (CMBS) or real estate investment trust (REIT) transactions, S&P acknowledged. In the tightened market, it is difficult for large urban commercial properties to find coverage of over $25 million from a single source, whereas previously there were several underwriters that were willing to provide $200 million, and more in some cases, in coverage on a single property. S&P’s CMBS group expects to see these increases in costs reflected in issuer underwriting. Although insurance rates are not expected to drop back to their pre-2000 levels any time soon, S&P’s insurance group does expect some moderation of property and casualty insurance premium rates at the time of annual renewals in 2003 as more insurers enter the market anticipating a greater return for the risk.