US P&C: hard pricing market very unlikely

We believe that a hardening of commercial insurance rates is unlikely for multiple reasons. First, by our calculations less capital has been removed from the industry by the hurricanes ($25-35bn) than was surplus at the beginning of the year ($40-50bn). Second, we believe that only commercial property rates are likely to rise (c20% of commercial P&C) and even then by less than 10%. Third, the ILS market appears to have taken an outsized hit from the hurricanes, thus limiting the damage to the more traditional insurance industry. Lastly, the commercial P&C industry remains highly fragmented with distribution dominated by brokers who are likely to resist attempts to drive rates higher. With valuations remaining unappealing and interest rates continuing to weigh on earnings, we retain our Underweight view on the sector.