Despite the California wildfires, uncertainty over tariffs, and a looming global trade war, the commercial property market is the most competitive it has been in years, sources told Insurance Insider US.
Rates have dropped across the board, ranging between 5% and 40%, and sources said that barring an unforeseen catastrophic event, the trend should continue in the near-term, eroding the current high levels of rate adequacy.
This softening has been seen particularly in cat-exposed areas, where some sources said they’ve seen drops at the high end of that range.
“Those are the ones where prices went up the highest, so they’re the ones that could down the highest as well,” said one source.
Meanwhile, vanilla, less cat-exposed account areas have seen a less marked drop. One source noted that incumbents are seeing reductions of between 5% and 10%, and business that is re-marketed can attract reductions in the 15-20% range.
After surging from the second half of 2022, rates transitioned last year and by Q4 were down by 4%, according to Marsh’s rate index, as increased risk appetite from carriers sharpened competition in the space.
The shift is dramatic given property had seen a lengthy stretch of premium growth, 29 quarters in all.
The rate rises were caused by a dramatic rise in cat losses, which, in turn, was driven by climate change and an influx of people and businesses to cat-prone areas, such as the Sun Belt. Other factors at play included a prolonged period of soft rates, and reduced confidence in the output from vendor cat models.
It appears that correction is now at an end, sources said.
Sources said that while hurricanes Helene and Milton were of significant size and resulted in losses when they made landfall, those losses, which came out to between $35bn and $55bn cumulatively, were manageable due to the significant increase in the commercial property premium base in the preceding years.
That led to relatively few hiccups arising during the January 1, 2025 treaty renewals, with reinsurers giving back significant rate.
The result was an oversubscribed cat wind sector, with insurers fighting to secure new business to meet growth plans and to defend their existing books.
While competition has driven rates down across the board, the picture is murkier when it comes to terms and conditions.
Some sources said those have largely remained static, while one said they had seen reductions in deductibles ranging between 10% and 20%.
One executive said he’s seen deductibles drop as low as 3% of total insured value (TIV) in cat-prone, loss-stricken regions of Florida.
The downslope
While rates may be on a clear downward trajectory, and the base case is for continued softening, numerous sources said the situation is tenuous and subject to shocks.
Despite most wildfire losses being tied to personal lines, some said another significant catastrophe could reduce appetite for property risk more broadly.
That sentiment was not felt across the board, with one broker saying that multiple cat events would be required before the industry can expect to see a reversal in the declining rates.
On the domestic side, sources said the upcoming hurricane season could be the decisive factor, as multiple destructive storms could lead to a contraction in capacity. Alternatively, a major hurricane could combine with unusually destructive convective storms, a wildfire, or some other unforeseen event to disrupt market conditions.
But, they noted, capacity could also be affected by the reinsurance market, and that, in turn, can see a sudden shift if there are large cat losses on an international scale.
However, at this stage there is an expectation that reinsurers will continue to give back rate through 2025 despite significant wildfire losses, reflecting their elevated returns in 2023 and 2024.
Wildfires
The January wildfires inflicted significant losses on the industry, with estimates ranging from $40bn-$50bn. Multiple (re)insurers booked losses in excess of $500mn. However, the nature of the loss meant that there was only a very muted impact on commercial property insurers.
Of the more than 16,000 structures destroyed by the fires, only around 10% were commercial properties, with much of the damage being restricted to personal lines, particularly those belonging to high-net-worth homeowners.
Another source noted that negotiations for the January 1, 2025 treaties, which took place before the wildfires, were “very aggressive,” with brokers pushing hard for rate reductions. That aggression has continued in primary markets even after the fires.
Despite commercial property being relatively unscathed by the wildfires, there could be some secondary effects that make a difference for the market.
Sources said Florida has been attracting some of the capital moving away from California in the fires’ wake.
In addition to the price corrections of the past several years, the Sunshine State has grown more attractive to insurers due to tort reforms signed into law in 2023, though some measures have been recently introduced that could weaken those positive changes.
Florida has seen an influx of new insurers, holding $418mn in policyholder surplus, as a result, according to the state’s insurance commissioner.
Volatility in other areas of the P&C market is also partially responsible for the downward shift in commercial property pricing.
One source suggested that increased uncertainty around the profitability of casualty has left insurers with a hunger for growth looking to other lines. Years of compound rate rises – and in particular the 2022/23 reacceleration of rates - has made commercial property an attractive option.
That has benefited insureds in the commercial property realm.
“If you want to keep your premium volume, because you're a public company, up to a certain amount, because you've promised the Street that you're going to do so, the only way to get it in any meaningful way is property,” said one source.
The tariffs wildcard
The trajectory of the current downswing in pricing is subject to a greater than normal level of uncertainty due to President Trump’s aggressive tariff policy.
Sources said that while much remains unknown about where tariffs will settle, there is scope under a range of scenarios for a meaningful increase in reconstruction costs – something which would inflate property loss costs.
In April, the Department of Commerce announced its intention to increase duties on Canadian softwood lumber to 34.5%, which does not include the 25% tariff on all Canadian goods the Trump administration has threatened.
Tariffs could also affect the price of imported raw goods necessary for reconstruction, such as aluminum and steel.
While the exact effect on losses remains unclear, what is known is that whatever the severity of the effects, “everybody’s going to be feeling the pinch,” a source said.
In addition, the market will face significant indirect impacts as a result of the volatility caused by the tariffs and the associated uncertainty.
Sources were hesitant to speculate on specific effects that could come about due to the tariffs, but acknowledged they could contribute to the economy heading towards a recession.
Recessions “are tough”, acknowledged one executive, who said they believe all available data points to a looming recession, albeit a minor one. However, they said they haven’t seen others in the market responding to that possibility just yet.
Still, there are fears of an impact being felt as some insureds could go out of business or choose to self-insure as a cost cutting measure. As seen below, commercial lines property premiums track GDP relatively closely, with downturns stifling premium growth.
Given the situation’s unprecedented and unpredictable nature, the strategy that will be widely adopted across the industry is “what we call the wait-and-see method,” predicted Mike Andler, EVP of the national property practice at Lockton.
“We're going to wait and see if tariffs really are going to have an effect. Is this a short-term thing for Trump, and is the administration going to have any meaningful effect on overall inflation?”