The Inside Look with Xander Snyder - Episode 30

Commercial property insurance premiums have begun to decline after several years of sustained increases. In this episode of The Inside Look, First American Principal CRE Economist Xander Snyder explains how increased reinsurance capacity is driving today's pricing relief, why the trend may be cyclical rather than permanent, and what it could mean for commercial real estate owners and investors.

Hi, I’m Xander Snyder and this is First American’s Inside Look.

For commercial real estate owners, property insurance has been one of the clearest sources of operating expense pressure over the last several years, but most recently, commercial property premiums have begun to fall.

In this episode of The Inside Look, we'll look at what's driving this decline and whether or not the decline is likely to persist.

Annual growth in commercial property insurance premiums peaked near 20% in mid 2023.

It then slowed through 2024 and began falling in 2025.

And by the first quarter of 2026, premiums were down by roughly 10% year over year.

That's a meaningful change.

From 2022 to 2024, rising insurance premiums were a direct hit to net operating income for many properties.

However, over the past year, insurance has in some cases become a modest tailwind to profitability.

So what changed?

Well, in short, reinsurance capital became more available.

What's reinsurance?

Well, when you work with an insurance company, you're working with a primary or regional insurer.

That's just what they're called.

Those primary insurers also want to protect themselves from very large losses, and they do so by purchasing reinsurance.

So the amount of capital that's available to reinsure primary insurers is what's called reinsurance capacity or reinsurance capital.

When reinsurance capacity is scarce, insurers have less ability to transfer risk.

So they respond by tightening terms, reducing the amount of coverage that they offer and that they're willing to underwrite, and, of course, by charging higher premiums.

When reinsurance capacity becomes more abundant, the process works in reverse.

Insurers can transfer more risk and can therefore compete more aggressively for commercial property accounts.

Reinsurance capacity increased meaningfully in 2025.

Two things helped drive this trend.

First, the tight market in reinsurance from 2022 to 2024 produced strong returns for insurers who are willing to deploy capital.

However, since there wasn't as much reinsurance capital to go around, the capital that was there was able to charge more for assuming risk.

Second, in the back half of 2025, there were fewer catastrophic losses than were initially expected.

So that allowed reinsurers to retain more capital that they had initially expected to lose.

So they had more money leftover at the end of the year and they were therefore able to deploy more of it back into the market.

This is why property insurance premiums can fall even though the underlying fiscal risk for properties hasn't disappeared and the long run trend in climate related property risk is still clearly upward.

Severe weather events have become more frequent and more costly over time.

If you look at NOAA's data set on this, there are roughly $3 billion weather events in 1980 and now there's well over 20.

And this is inflation adjusted.

But insurance premiums don't move in a straight line with that trend.

The they cycle around the long term trend as risk capital becomes more scarce, more more abundant.

So in other words, today's property insurance relief is more likely to be cyclical and near term than the beginning of a long term persistent trend.

A few severe catastrophe seasons could push reinsurers back into a defensive posture that would again reduce capacity, tighten underwriting limits, and put renewed upward pressure on property premiums in a cycle where income returns will have an outsized role in total returns.

And I've talked about this in greater length elsewhere.

We'll include a link to some of these blog posts.

Commercial real estate owners and operators should treat the current decline in property premiums as a near term, but not permanent opportunity.

Owners may well have more negotiating leverage with their insurance providers now than they did a year or two ago.

But critically, that doesn't mean that the long term trend in physical commercial property risk has fundamentally changed.

The reinsurance capital cycle can turn quickly, especially after a major catastrophe year.

Thanks for joining me on this episode of The Inside Look. We’ll see you next time.