Q2 rates commentary: Hard market watch

Commentary from industry executives suggests carriers have achieved broad-based success in pushing higher rate rises sequentially in the second quarter, with strong and building momentum as pre-existing dynamics are aided by the direct impacts of Covid-19 and, critically, its indirect effects like ultra-low yields. 

Senior industry figures have recounted rate increases of as much as 30% to 40% for commercial property risks attained during the period, while also saying pricing in some segments of professional liability business, including directors’ and officers’, had surged by as much as 40% to 60%. General casualty, particularly excess casualty and umbrella, is another hotspot.

Rating pressure is highest on large account business, with rates surging in the E&S market where submissions continue to increase rapidly following major inflows through 2019. 

Retention held up well even as commercial insurers pushed major rate increases, potentially reflecting a reduced propensity to shop around for business at a time of operational disruption. 

The headline rate rise for AIG’s North American commercial lines book was 21%, with Chubb registering +14%. 

Speaking on second quarter earnings calls, Chubb CEO Evan Greenberg, CNA CEO Dino Robusto, and WR Berkley CEO Rob Berkley all underscored the necessity of continuing rate improvements following a prolonged soft market. 

All three executives stressed – in line with prior commentary from Inside P&C – that pre-existing trends were the key driver of rate acceleration, alongside the impact of the collapse in already depressed yields, with direct pandemic impacts more muted. 

Greenberg said: "Look, why is this occurring? Because loss cost trends, even when they're benign, have far exceeded premium rates charged for a prolonged period of time. Rates have gone in one direction, while loss costs have continued to rise. And so industry results overall are severely elevated and many lines of business just were so inadequate in pricing." 

Berkley said that although Covid-19 was the "topic du jour", it is important not to lose sight of "other realities" that had created the pre-pandemic "groundswell" in rates. 

The executive then cited the low interest rate environment and a pick-up in loss cost trends driven to a great extent by social inflation. 

"These drivers that I just referenced remain alive and well. And quite frankly, I would suggest, if you thought during 2019, interest rates were low, then you must think that they are really low today." 

The executive also predicted that the disruption to loss trends resulting from frequency benefits would likely represent only "a brief hiatus". 

Robusto also stressed pre-existing dynamics as crucial to the rating story: "From a rate perspective, although there are a number of unknowns with Covid-19, I do not believe the dynamics that underpin the hardening market over the past 18 months have fundamentally changed.  

"If anything, the outlook for the protracted low interest rate environment has deteriorated." 

Q2 reported rate changes

Source: Company reports, Inside P&C

AIG recorded rate increases of as much as 35% for US retail property risks written during the second quarter, while Chubb reported rate rises of 20% for major property accounts in North America and 18% for mid-market property.  

Rates in the excess and surplus (E&S) markets have surged, as risks that previously would have been placed in the admitted market flow into the surplus lines market.  

Pricing in the E&S property market increased by about 19% during the second quarter according to Axis, while Florida-headquartered broker Brown & Brown said it had recorded rate rises of between 15% and 25% for coastal flood risks placed in the excess market. Chubb said that Westchester had achieved a portfolio-wide increase of 18%. 

Meanwhile, in the public D&O market, AIG said it had achieved rate increases of 50% during the quarter, while Axis said it had pushed through rate rises of up to 60%.   

Speaking on WRB’s earnings call, president and CEO Rob Berkley said the insurer had been increasingly successful in making this case across property and general liability accounts, and that larger rate rise were increasingly being accepted across larger accounts.  

“Quite frankly, both of these product lines need the rate that they are getting and probably more,” he told analysts.  

CNA CEO Dino Robusto said that based on current market dynamics including low interest rates, social inflation and elevated cat losses, he was more positive on the outlook for next year than previously. 

Clearly, the events in the second quarter hurt our underwriting results overall. However, the good news from our engagement in the quarter is that I am even more bullish that the hardening market conditions will persist well into 2021.”  

Workers' comp rates continued to soften, but Berkley said he was seeing signs the market was now “in the early stages of bottoming out”. 

Q2 reported rate changes

Source: Company reports, Inside P&C