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The Insurer In Full: CEOs confident US rates will continue to outpace loss costs

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An analysis of US commercial insurance feedback provided by management in earnings releases...

and on investor calls reveals rate increases continue to accelerate for most, with pricing drivers such as social inflation and the low interest environment expected to persist throughout 2021.

Overall price increases by company

One message that has come through loud and clear from Q4 reporting by US-listed P&C companies is that rate increases are generally outpacing loss costs.

Early reporter Chubb set the tone, unveiling Q4 commercial P&C rate increases that averaged 16.5 percent in North America insurance and 18.5 percent in overseas general insurance. These greatly exceeded loss cost trends – by 11.5 percentage points and 15.5 percentage points, respectively.  

“The level of rate and rate increase was the strongest since this part of the underwriting cycle began approximately three years ago,” Chubb chairman and CEO Evan Greenberg commented on his company’s earnings call. “I expect the favourable underwriting conditions to continue.”

Chubb Q4 rate increases by line

Unlike Chubb, most other insurers did not quantify the exact difference between rate trends and loss cost trends but they did echo the same sentiment.

CNA reported overall rate increases of 12 percent for the fourth quarter. On its earnings call, CEO Dino Robusto said that the full-year rate movement was more than double the increase seen in 2019, with the 11 percent of written rate increase equivalent to 8 points on an earned basis for the full year – comfortably ahead of its long-run loss cost trends of around 4 points.

“I see the quarter as further evidence of a sustained hardening market,” Robusto said.

WR Berkley CEO Rob Berkley on his company’s earnings call declared “the market is clearly in the throes of firming”. He added: “When we look at Q4 and when we think about our own business, every product line at this stage with the exception of workers’ compensation we believe is achieving rate in excess of loss cost.”

Everest Re president and CEO Juan Andrade on his company’s earnings call observed: “Rate is outpacing our expected loss trend and renewal retention across the entire portfolio is strong.”

Everest Re Q4 insurance rate increases by line

The Bermudian company recorded Q4 insurance renewal rate increases of 21 percent excluding workers’ compensation and 14 percent including it.

“The rate we achieved is a function of market conditions and disciplined proactive underwriting actions across our businesses,” Andrade said. “After years of soft pricing and rising loss costs, pricing adjustments are necessary, and we expect they will continue throughout 2021.”

Overall price increases by company

Rate increases accelerating or stabilising? 

Less clear is whether the rate increases are still accelerating or whether they are levelling off. 

A review of the headline figures gives a mixed picture, though most major US-listed insurers reported higher price increases than in the previous quarter as well as the prior-year period. 

Axis Q4 rate increases by line

Travelers reported “record” business insurance renewal rate change of 8.4 percent. Similarly, Everest Re said that its 21 percent insurance rate increases excluding workers’ comp were also a record for the company.

WR Berkley’s 15.4 percent Q4 average rate increases excluding workers’ comp continued its trend of acceleration, following rises of 14.5 percent in Q3, 13 percent in Q2, 12 percent in Q1 and 9 percent in Q4 2019. 

Chubb was a similar story. Its North America P&C rate increase of 16.5 percent in Q4 was up from 14 percent in Q3 and was almost double the 8.3 percent for the fourth quarter of 2019. 

Axis Capital also reported an acceleration in price increases. Its overall insurance price increases were 18 percent in Q4, up from 16 percent in Q3 and 11 percent in Q4 2019, while its US price increases inched up to 17 percent in Q4 2020 compared with 16 percent in Q3 2020.

In addition, insurance giant AIG last week reported North America commercial pricing was up 21 percent, 1 point ahead of the 20 percent in Q3 and up significantly on the 14 percent in Q4 2019. 

AIG Q4 rate increases by line

However, some carriers reported rate increases that were higher than in the third quarter but not the prior-year period. 

The Hanover reported 6.4 percent rate increases in core commercial lines in Q4, up from the 5.7 percent in Q3 but down from 7.9 percent in Q4 2019. 

Rate increases were stable for others. CNA’s P&C division recorded 12 percent average rate increases in both Q4 and Q3 in 2020, which was up greatly on the 7 percent in the fourth quarter of 2019. 

Likewise, The Hartford reported US commercial lines renewal pricing that was up 11 percent excluding workers’ comp in both Q4 and Q3 2020. 

Momentum stalling?

None of the US-listed insurance companies analysed by The Insurer reported Q4 rate increases that were down on the figure reported in Q3 2020. 

But other pricing indicators give cause for pause. 

Broker and other feedback on US commercial pricing

Last week the Council of Insurance Agents and Brokers released its quarterly commercial pricing survey, which revealed Q4 2020 overall average price increases of 10.7 percent, down from 11.7 percent in the third quarter. This stalled the pricing acceleration that had been shown through increases of 10.8 percent in Q2, 9.6 percent in Q1 and 7.5 percent in Q4 2019.

Similarly, Marsh’s latest global pricing index released earlier this month showed Q4 pricing in the US was up 17 percent. This was lower than the 18 percent figure the broking giant provided for Q3, which itself had been stable with Q2 following increases of 14 percent in Q1 and 10 percent in Q4 2019. 

Willis Towers Watson has not yet released Q4 figures for its Commercial Lines Insurance Pricing Survey, but that indicator had shown a slight drop in rate increase for the third quarter. Having almost touched 10 percent in Q2, rate increases in Q3 were just above 9 percent. 

Broker and other feedback on Q4 US commercial pricing by line

 

Forecasting 2021 

Insurance company management on their earnings calls provided indications of how they see pricing playing out for the rest of the year. The forecast appears to be for more of the same.

Commenting on the outlook for pricing, AIG’s Zaffino said: “As we look into 2021, we expect to see rate increases continue. We expect to see these rate increases be above loss costs. And we expect that these rate increases will be balanced across our global portfolio and across multiple lines of business.”

Chubb’s Greenbeerg expects the favourable underwriting conditions to continue.

“Looking forward, we are off to a very good start to the year in the first quarter,” he said. “Both growth and the level of rate increase we are achieving look a lot like the fourth quarter. Based on everything we see, the current commercial market condition has legs.”

The pricing outlook remains much the same because the underlying conditions are unchanged, the executives noted. The feeling is that additional rate is needed to offset pressure from factors including social inflation, more frequent catastrophe events and a persistent low interest rate environment.

CNA’s Robusto commented: “All of the conditions that everyone has talked about – Covid-19, the low interest rate environment, elevated cash, the history of rates and loss cost trends – mean I think this market is going to persist in 2021, albeit you might see some fluctuation from quarter to quarter.”

The executive said CNA’s activity in January had indicated these market conditions were persisting. “I’m not really sure when it’ll start to flatten out, but we see a lot of opportunity,” he said.

Arch Capital CEO Marc Grandisson provided a sports metaphor when he described the opportunity for the Bermudian (re)insurer this year to build on the Q4 growth in many lines. He highlighted that D&O, property, energy and marine are all exhibiting strong advances while E&S casualty and alternative markets are also growing.

“We believe that rate momentum in these lines is healthy, and we also see it building in other lines, albeit at a slower pace,” Grandisson said. “The advantageous position we find ourselves in is similar to [a] hockey power play, where the odds are in our favour. Now after spending a good portion of the last several years in a defensive position, we’re embracing a more offensive mindset.”

The comments of course were made before the recent big freeze in Texas and other areas of the southern US, which is already being talked about as a potential $20bn cat loss in a quarter which typically only sees around half of that level.

The question for the market is how long that power play lasts and how much they can take advantage of it while it does.

Q4 2020 management commentary

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