Commercial P&C pricing cycle close to peak, says JP Morgan

Analysts at JP Morgan have reported that the pricing cycle is “probably close to the peak” in commercial lines.

Underlining the backdrop for this statement, JP Morgan’s analysts highlighted that since 2018, prices in many lines of business on the wholesale side of the P&C re/insurance sector have seen “material price corrections as a reaction to poor industry profitability, elevated catastrophe losses and the rise of phenomena such as social inflation.”

Citing data from Marsh, JP Morgan’s analysts noted that global commercial lines prices have seen increases of ~60% in aggregate since 2018.

“As a result, the commercial P&C arms of AXA, Allianz and Zurich have benefitted from strong pricing trends over the past few years,” the analysts added.

However, in the last year, JP Morgan said it has seen prices continue to increase, but at lower levels in aggregate than in previous years.

“Price hardening is much less widespread and limited to areas such as property in which the reduction in reinsurance cover has seen catastrophe-exposed business see material price increases,” JP Morgan’s analysts observed.

They continued, “In most cases, we believe pricing is still sufficient to offset loss cost and claims inflation trends, supported by an implicit indexation for inflation in many commercial P&C business lines.

“As a result, with industry profitability at good levels, and prices having moved materially, we believe that the cycle is probably close to the peak in commercial lines.”

JP Morgan’s analysts concluded that the upshot of the positive part of the cycle coming to an end is that margin improvement on the underwriting side “is likely to be more difficult to come by in the near term.”

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