The story for the insurance industry in 2015 and heading into2016 is one of high capacity, according to Marsh's “UnitedStates Insurance Market Report 2016.” Here's a look at how capacitywill shape four trends in the U.S. property & casualtymarket.

1. Slowing of reinsurance rate decreases

Marsh's report says Jan. 1 reinsurance renewals showed generallydecreasing rates across most lines and geographies, thanks in partto a lack of significant loss events. But the pace of decreasesslowed compared with recent years.

U.S. Property Catastrophe saw decreases of 5% to 8% on average,as opposed to 7% to 14% a year ago. Property Cat, of course, iswhere the vast majority of alternative capital from variousinvestors has found a home—and while this new capital has keptcapacity abundant and pricing competitive, alternative capital maybe more responsible for the slowing of rate decreases thantraditional players.

“The price decreases or cost decreases from capital andalternative markets firmed up a bit earlier than the traditionalmarkets,” says Chi Hum, global head of insurance-linked securitiesdistribution at New York City-based GC Securities, a division ofMMC Securities LLC. The interest is there among investors, he says,but as rates have quickly fallen, investors have been hesitant toput more money in and accelerate the declines.

2. Shifting reinsurance capital landscape

Total capital dedicated to reinsurance is estimated at $400billion. Traditional capital declined a bit, but alternativecapital made up that difference. Alternative, or convergence,capital, which includes catastrophe bonds, industry losswarranties, collateralized reinsurance and sidecars increased 13%in 2015 to $68 billion.

The primary focus of alternative capital continues to be Property Cat, but thereport cites some evidence of broadening appetite. While thegeneral feeling is alternative capital has little interest in the Casualty reinsurance sector, Hum saysit's not as simple as lumping investors together and saying theyare interested or not interested in long-tail lines.

For traditional players, the report says increased evidenceshows capital slightly shifting to insurance lines fromreinsurance. Furthermore, it adds, many reinsurers reducedcatastrophe exposure through the use of retro capacity, largelyfrom the convergence market.

3. High capacity, softening rates in Casualty

Rates generally softened in 2015 and are expected to do so thisyear, Marsh says. Rates for General Liability were typically down10% to up 5% in Q4, Lead Umbrella rates were typically down 5% toup 5% with excess layers down 10% to up 5%, and Workers' Comp rateswere down 10% to flat for guaranteed cost programs and down 10% toup 5% to loss-sensitive programs, even as medical costsincreased.

The report notes that, while rates are softening, underwritersare sharpening their underwriting focus. Stephen Kempsey, U.S.Casualty Practice leader for Marsh, says that means “increasedscrutiny, more homework, more analytics, more underwritingreferrals—and that probably results in a different type of riskselection or different attachment points.”

One standout in the casualty space is Commercial Auto. Kempseysays in a blog post that in Q4, “nearly half of all companiesrenewed with rate increases. And if losses continue to accumulate,this market is likely to remain challenging for most buyers in2016.”

On the flip side, Workers' Comp— which Marsh notes has long been a “topic ofconversation” for the industry—“continues to be favorable toinsureds,” Kempsey says, with continued improvements in combinedratios.

4. favorable terms for buyers

The Marsh report says Commercial Property rates continued theirtwo-year softening trend. Non-catastrophe-exposed properties sawrate decreases of between 5% and 10%, while cat-exposed propertiessaw decreases of between 5% and 15%.

Minimal cat losses, competition and the low cost of reinsurancehelped drive down rates, says the report. While competition was notbecause of a flood of new entrants, Marsh says existing insurersgenerally increased their underwriting capacity and grew theirbusiness. Capacity increased for named windstorm, storm surge andearthquake risks.

Insureds have been able to secure favorable terms and conditionsin 2015 as well, and that is expected to continue this year. Marshsays that, to lock in low rates, “many insureds sought to securemultiyear policies, to which insurers have become moreamenable.”