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Insurance pricing forecast: More rate cuts

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HOLLYWOOD, Fla. — Pricing looks to remain soft for the January renewals as insurer and reinsurer competition remains strong for the business amid light losses, but the declines look to be less than in recent renewals.

“There's excess capital that will probably support further pricing pressures” in primary insurance renewals, said Tracy Dolin-Benguigui, director of financial services ratings for North American insurance at Standard & Poor's Corp. in New York.

Pressure will come primarily in property markets and to some extent in casualty, but loss histories also play an important role in pricing, she said.

“It really depends on the loss experience, so it's hard to generalize about the rate movements,” Ms. Dolin-Benguigui said.

Within the casualty sector, medical malpractice rates have declined and workers compensation rates have flattened from single and double-digit increases previously, she said.

As for reinsurance for the Jan. 1, 2016, renewals, smaller declines in rates are expected than in recent years, analysts and executives said during the Property Casualty Insurers Association of America's conference in Hollywood, Florida, last month.

“If you look at what we've seen in the past six to eight months, we really saw a stall in the price change in the middle of the year,” said Monica Ningen, chief property underwriter for the U.S. and Canada at Swiss Re Americas in Armonk, New York.

Both pricing and terms and conditions simply do not have as much room to fall anymore.

“You have to recognize that terms and conditions are part of the pricing equation — they're not separate,” said Ms. Ningen. “When a price equation gets to a certain point, you don't want to see decrease in prices or expansion in terms.”

“Generally speaking, we do see intense price competition, but it has been moderating lately,” said Steve Levy, president of reinsurance at Munich Reinsurance America Inc. in Princeton, New Jersey.

“Our expectation is that the competition will continue to moderate going forward,” said Mr. Levy. “I wouldn't expect a turn in pricing, but rather continued moderation in the level of competition.”

“I would expect rate declines to be smaller, closer to low-single-digit declines” for reinsurance for the January renewals, he said.

“I think you're going to see a pretty competitive market, but I would expect the trends that we've seen in the past few years in terms of double-digit decreases will start to slow down,” said Ms. Ningen.

Property pricing remains the weakest.

“I think it's fairly common knowledge it's a soft market,” said Rod Fox, managing partner at TigerRisk Partners L.L.C. in Stamford, Connecticut.

January reinsurance renewals “should be down 5% to 10%, but it could be more in the property catastrophe space,” said Mr. Fox.

Casualty reinsurance markets have moved down over the past several years and may not have much more room to fall.

“I think we're flattish to down a little bit in the casualty lines,” said Mr. Fox.

Sources pointed to favorable loss activity as a factor in renewals pricing.

“The market remains highly competitive, and there have been no large loss events,” said Ms. Ningen.

“We've had benign loss activities — people look at the catastrophe space — and I think you're going to continue to see that reflected in Jan. 1 rates,” Mr. Fox said.

Still, there are areas of demand and growth in the reinsurance market.

One area has been U.S. mortgage credit, said Bryon Ehrhart, Chicago-based CEO of Aon Benfield Americas. The company has placed just over $3 billion of new limits into the marketplace in 13 policy placements/client transactions in the past year, he said.

Another growth area is cyber coverage.

“Cyber is forecast to continue to build as an area of demand for insurance, and insurers are seeking more reinsurance support,” said Mr. Ehrhart. Premium growth is expected to triple by 2020 from today's estimated $2 billion to $2.5 billion, he said.

Commercial auto insurance is one area where rates are rising.

Both commercial and personal auto lines are seeing rate increases as insurers report increases in loss severity and in some cases, frequency, Ms. Dolin-Benguigui said.

“Clients are seeing an increase in frequency and severity in the trucking and transportation area,” said Nancy Bewlay, managing director and head of casualty underwriting in the U.S. and Canada with Swiss Re in Armonk. “There is a lot of discussion on the sources of the reported increase in frequency and severity.”

“In some areas where there has been increasing loss activity — for example, the commercial auto segment — we're seeing rate increases,” Mr. Levy.

Discipline remains important in such a soft market.

“Conversations with (insurers) show that they are conscious of market pressures but holding to underwriting discipline,” said Ms. Bewlay. “They are holding the line with how they will respond to market pressure.”