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Property continues to lead US rate softening

There appears to be no end in sight to rate softening in the US property cat insurance market, according to the early reporting brokers and carriers on second quarter earnings calls last week.

Intermediary Brown & Brown said that average rates across its portfolio of business in the admitted market were generally flat to down 5 percent.

The exceptions were commercial auto, where rates were flat to up 5 percent, and coastal properties and commercial difference in conditions property, where rate declines of 10 to 25 percent continued as they had for "a number of renewal cycles".

The company's president and CEO J Powell Brown said that rate decreases were adding pressure across its retail, wholesale and national programmes businesses.

"We expect this to continue for the remainder of this year, and the rates in 2017 will depend on the occurrence of a major weather-related event or events this hurricane season," he commented.

The executive said his company was seeing evidence that some standard carriers were beginning to "draw the line" with their underwriting guidelines on coastal property.

But he added that after three years of 10 to 25 percent softening, continued rate declines were something of a surprise.

"There has got to be a point usually where you hit the bottom... and if you compare it to the quarter last year in 2015, you might have thought that the rate decreases on certain properties would be not as great," said Brown.

Pre-Andrew levels

And he suggested that coastal pricing in some areas was beginning to fall to pre-Hurricane Andrew levels.

"We've continued to scratch our heads at the continued rate decrease or pressure," Brown continued.

As well as its wholesale and retail units, Brown & Brown has a growing programme business that includes coastal and quake specialist Arrowhead.

US specialty carrier RLI also reported continued pressure on cat business.

"The cat business remains a very tough story. Prices continue to decline at a double-digit pace," said president Craig Kliethermes.

"I don't think we believe the underlying loss costs are getting better, but the rates are certainly going down. So, certainly there is some deterioration but it's hard to observe a lot of deterioration if you don't have big losses, because the loss ratio is zero if you don't have any losses," he continued.

The executive said that away from property cat his company had been able to take opportunities in transportation as pain suffered by other carriers had led to rates increasing for the business.

"Many established markets appear to have endured enough pain for now that they're taking a time-out to reassess, but they're now charging enough so that we are more attracted to the risk," he explained.

Kliethermes added that casualty rates remained relatively flat overall.

Edging up

Although overall business insurance rates at sector bellwether Travelers edged up into positive territory at +0.2 percent in the second quarter, compared to -0.1 percent in Q1, the drag that its national property book put on pricing was apparent.

Housed in the insurance giant's other business insurance unit, national property was the key driver that sent renewal rates in the segment down 0.9 percent. Pricing changes were comfortably in positive territory when the class was stripped out (see chart).

Travelers doesn't separate the catastrophe-exposed element of its property book in its disclosures on rate movements, but group president and COO Brian MacLean highlighted continuing pressure across the class.

The insurer said it was seeing upward momentum in auto, however, with workers' comp under the greatest strain.

MacLean added that large accounts continue to come under more pressure than smaller accounts.

"I think even larger casualty business is under a little more pressure than the middle and small type of business," he said.

Travelers reported that the underlying combined ratio for its business and international insurance units increased by 1.5 percentage points to 94.4 percent, which it said was primarily down to loss cost trends that exceeded earned pricing.

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