Positive underwriting gains expected in 2016 for U.S. commercial lines insurance: Wells Fargo

Despite rate reductions and low investment returns, commercial lines insurance in the United States is on track for positive underwriting gains in 2016, according to Wells Fargo Insurance’s annual 2016 Market Outlook, released on Wednesday.

Favourable losses across most insurance lines and lack of multiple catastrophic property losses are driving this trend, Wells Fargo said in a press release. 2016 forecasts rate decreases in the mid to high single digits.

The report, which forecasts market conditions for a wide variety of product segments, including liability, property, aviation, technology and professional errors and omissions and cyber, concluded that “industry surplus remains high and will continue to be deployed in a number of ways, including new coverage offerings and mergers and acquisitions.”

Doug O’Brien, casualty and alternative risk national practice leader, said in the release that “2015 was another buyer’s market for both property and casualty commercial insurance and affiliated lines, with rate decreases from medium- to- high single digits to low double digits. Barring any catastrophic events, we expect similar trends will continue in 2016 for a majority of industries and coverage lines,” he said. “Rate decreases are expected in the mid- to- high single digit range for most lines as new and existing capital is deployed into the property and casualty market.”

Other highlights and trends to watch in 2016, according to report, include:

• GDP growth, although expected to slow in 2016, should lead to higher revenues, payrolls and property values on which insurance premiums are based. This will help offset some of the premium lost by insurers through year-over- year rate reductions, the report suggested;

• Moderately rising interest rates will provide an environment in which higher investment returns are possible for insurers;

• The continued focus on data analysis to develop more sophisticated and accurate predictive patterns and trends of losses (mainly workers’ compensation, but also other p&c lines), is “seemingly advancing monthly,” the report said. Insurance companies, brokers, third-party administrators, and other vendors are utilizing first-party and third-party data as an underwriting tool, means of loss control and way to handle claims more timely and efficiently. However, it remains unclear whether the data used is interpreted objectively, the resulting conclusions are accurate, and recommendations are implemented appropriately;

• Surplus capital will continue to be deployed by markets into existing and emerging product lines;

• As profitable organic growth is becoming increasingly difficult to achieve, the trend for mergers and acquisitions in the insurance and reinsurance market will continue to drive cost efficiencies, increase product line offerings, provide for a global geographic footprint and increase market share.

Wells Fargo Insurance writes or places approximately US$11 billion of risk premiums annually in property, casualty, benefits, international, personal lines and life products, and crop insurance.