July 1 rate increases below expectations on abundant capacity

The natural catastrophes of 2017 had some impact on July 1 renewals, but property rate increases were not as severe as many experts initially feared for those who emerged from last year’s deadly storms relatively unscathed.

The impact of the catastrophes on pricing was muted to a large extent by the abundance of capacity in the market, experts said.

In April, a Swiss Re Institute sigma report found that global insured losses from disaster events last year totaled $144 billion, the highest ever recorded in a single year, according to Swiss Re Ltd.

The highest losses came from hurricanes Harvey, Irma and Maria, which struck the U.S. and the Caribbean in quick succession and resulted in combined insured losses of $92 billion, equal to 0.5% of U.S. gross domestic product, according to the Swiss Re report. The hurricanes made 2017 the second-costliest North Atlantic hurricane season since 2005.

“First-quarter renewals faced a lot of uncertainty, with carriers pushing higher rate increases than what actually stuck,” said Martha Bane, property practice leader for Arthur J. Gallagher & Co. in Los Angeles. “The market has stabilized and generally speaking most property placements continue to feel some degree of rate increase. However, it’s more modest than we expected in the first quarter of the year.”

Clients in catastrophe-exposed areas who have favorable loss histories “have experienced single-digit rate increases on average, while those clients with significant HIM — Harvey, Irma, Maria — losses have obviously experienced higher rate increases in the upper-teen range and higher if the losses were more significant,” she said.

“I think the difference with this market, generally speaking, is that there has not been a retraction of capacity,” Ms. Bane said. “This has helped stem the level of rate increases.”

“Those with more severe losses and hospitality clients in Florida and the Caribbean in particular, are experiencing much higher levels of rate increases than other asset types,” she added.

Ed Mazman, Boston-based executive vice president of Ironshore Inc.’s U.S. property unit, said the rating environment has not changed since February.

“What we’re seeing is a wide range of rate change, anywhere between 5% increase and 100% increase in certain classes of business and the type of loss activity,” he said.

The Caribbean, the Gulf Coast and the Southeast coastal areas have seen rate increases, Mr. Mazman said

Mr. Mazman said the hospitality business in Florida and the Caribbean, “where you had the megalosses, the $100 million losses, you’re seeing major rate increases on that business.”

Gary Love, vice president of operations underwriting with FM Global in Johnston, Rhode Island, said in an email: “Rate increases continue to be realized through the first six months of 2018, helping make a small dent in what was a 13-year run of declining rates.”

“Even though rate levels have dropped below a sustainable level across the entire global property market, increases are not across the board but rather vary by client,” he said.

“January 1st is a very large reinsurance renewal period, and the reinsurance market did not turn out to be as aggressive as everyone had anticipated and, as such, that allowed the retail market to ease pricing into the marketplace,” said Mike Andler, New York-based executive vice president, property practice leader with Lockton Cos. L.L.C. “So, we’re in a very overcapitalized market, and that overcapitalization is from a combination of traditional reinsurance and alternative capital.”

“Even though insurance company messaging is constantly saying ‘we need to see improved rate in our portfolio for long-term profitability,’ the reality is the supply-demand market is creating competition, and carriers are creating opportunistic pricings for clients that actually are prepared for renewals,” he added.

However, there is a developing trend of an increase in percentage for hail deductibles in the Midwest, Ms. Bane said.

“In the past, there would’ve been flat deductibles, but because of last year’s hailstorms and continuing trends with higher frequency and higher-severity hailstorms, the industry is pushing for higher-percentage-rate deductibles,” she said. “And this is for clients that wouldn’t traditionally have had exposure to cat deductibles, so it’s quite a significant change for those clients.”

Earthquake rates continue to remain competitive, Ms. Bane said, adding that insurers are seeking lower rate increases for earthquake-driven portfolios “as opposed to anything exposed to wind or flood.”