Firming will continue, and a more significant impact is anticipated in Q2. However, signs do not point to a significant market correction.
As we entered the latter part of 2018, underwriters were still offering flat renewal rates on non-catastrophe exposed property. However, the question loomed whether pricing conditions could hold into 2019. With 1/1 renewals now on the books, the answer is that the property market overall has seen some firming; however, there are significant differences between non-CAT and CAT-exposed business.
“There is still competition for clean, non-CAT business, particularly in desirable classes,” says Harry Tucker, executive vice president and national property practice leader for AmWINS. Those accounts can still expect moderate to flat pricing renewals.
However, catastrophe-exposed and loss-affected business could see double-digit rate increases, with spikes of 40% not out of the question. Additionally, a micro hard market is affecting specific classes that will continue to struggle with both capacity and pricing. These classes include multifamily habitational, sawmills and woodworking, dealer open lot, recycling operations, and large hospitality schedules, as well as properties with significant convective storm exposure in the Midwest.
Reinsurance also follows the overall property trend. Disciplined, prepared carriers with good loss records received risk-adjusted rate reductions from reinsurers, from flat to -5%. However, loss-impacted carriers are dealing with rate increases. The retrocession market also saw double-digit rate increases across loss-affected accounts.
It is important to point out that while reinsurance is a credible barometer of where the overall market is going, it does not tell the whole story. Reinsurance costs fluctuate depending on several factors, including carrier retention, limits purchased and risk characteristics. Additionally, by and large, reinsurance is an excess play. Direct carriers bear most of the primary exposure. “The primary carriers have suffered the most over the last two years, and this has caused many primary markets to tighten their underwriting guidelines, push for rate, or exit classes of business,” says Jeff McNatt, executive vice president and Florida region leader for AmWINS. Therefore, we need to understand how individual carriers view risks and what fits into their appetite and not draw specific conclusions.
Capacity is abundant in property, although there has been carrier consolidation over the past few years: Markel acquired Nephila, AXA acquired XL Group, AIG acquired Validus, and Hartford acquired Maxum Specialty. Additionally, there is a trend toward more conservative underwriting, whether reducing limits or tightening terms. For instance, AIG announced a new CEO for its wholesale-dedicated arm, Lexington, in August and are changing appetite to reduce limits being offered, increase pricing, and reviewing attachment points. Carriers like Aspen are in the process of rehabbing their property book in light of the recent CAT losses and acquisition by Apollo. These and other carrier actions are part of a broader trend being seen throughout the industry.
In London, Lloyd’s is undergoing a performance management process that is expected to shrink its 2019 gross written premium by around five percent. Traditionally, Lloyd's has been a large supporter of multifamily housing. More than a few syndicates have been asked to close their North American open market property operations entirely or exit certain classes of business in North America in which they have not been able to demonstrate the ability to maintain profitability. We are seeing the effects of this change in the loss of capacity from a number of Lloyd’s cover holders. However, those with proven track records continue to thrive and grow, including our property MGA (AmWINS Special Risk Underwriters).
“It is important that brokers partner with wholesalers who have trading relationships with a broad spectrum of the market,” Tucker says.
Carriers were hit globally by severe storms in 2018, although it was not the worst year of CAT losses, by far. Worldwide CAT loss estimates for 2018 are expected to be close to $80B, far below the 2017 record high of $144B but above the 20-year average of $57B. Domestically, the fourth quarter saw both Hurricane Michael and wildfires in California, which combined are expected to generate losses between $18-28B – well above the typical Q4. Additionally, Hurricane Irma loss development was a source of significant adverse experience seen by insurers and reinsurers in 2018. Non-CAT attritional losses also put pressure on rates as losses climb and carriers are unable to allocate CAT premium to subsidize their attritional exposures.
Catastrophe losses have had an impact on the insurance-linked securities (ILS) market. Although ILS expansion continues its upward trend into 2019, there is a difference in how investors are allocating their funds in light of high losses. With investors unable to release capital allocated to wildfires and hurricanes, the question is whether they are willing to commit additional funds.
“We are still seeing an influx of new ILS capital, albeit not to the degree as in years past,” Tucker says. “The biggest difference today is that new capital is being deployed more strategically.”
The property market is working on innovations on several fronts. Swiss Re has predicted the next stage in the evolution of innovative insurance products will be the development of non-physical damage business interruption (NDBI) covers, in some cases referred to as named-peril earnings insurance. In parametric insurance (which pays if the parameters surrounding a loss event are triggered, such as a certain wind speed, rather than just the event itself), 2019 will see more affordable, customized insurance options become more readily available.
“By offering Insureds specific exposure coverage where they see the most need, carriers can allocate expense to match their appetite for risk and help manage cash flow,” says Tucker.
Through the year, it is highly likely that firming will continue, with a more noticeable overall impact anticipated in Q2, beginning with 4/1 reinsurance renewals. However, signs do not point to a significant market correction. Capacity is still ample, and increased use of modeling leading to greater underwriting sophistication and pricing precision is producing better returns than in the past, despite claim activity.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.
Construction contract negotiations, which determine the kind and amount of insurance required for a construction project, can be time-consuming, complicated and frustrating. Project owners require contractors on a project to name the project owner as an additional insured on the contractor’s casualty insurance program. It's important that both project owners and contractors understand the coverage provided by these additional insured endorsements. This article discusses four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors, including their limitations, conditions and exclusions.
A common complication during the claim process is the late reporting of claims. In some cases, a late claim can put the agent or broker's own E&O policy in jeopardy. There are many reasons for missing a reporting deadline; however, in most cases, they will not matter to the insurer or the courts. This article discusses typical claim reporting requirements, common causes of late reporting, and recommendations to mitigate the risk of late notice claim denials.
The theories of recovery, as well as the ensuing loss provisions, contained in property insurance policies are often complex and, at times, seemingly in conflict. Although a policy may not directly address these theories, their application by courts plays a significant role in the coverage determination process after the claim. It is essential that brokers understand the primary theories of recovery – Efficient Proximate Cause, the Concurrent Causation Doctrine, and the Anti-Concurrent Causation Doctrine – in order to navigate the challenging post-claim process and effectively serve their clients.
The Thomas Fire, the largest fire in California's history, subsequently led to a mudslide on January 9, 2018, which caused a massive amount of damage in Santa Barbara and Ventura counties. The California Insurance Commissioner has issued a formal notice reminding carriers to pay for damage, citing the "efficient proximate cause doctrine." This article takes a closer look at the doctrine and how it has been challenged in court over the years.
Ordinance or Law insurance coverage provides limited protection for costs associated with repairing, rebuilding, or constructing a structure when physical damage to the structure by a covered cause of loss triggers an ordinance or law. Compliance with ordinances and laws after a loss can add 50% or more to the cost of a claim. This article will help you educate your insureds on exclusions and limitations and help them take a proactive approach to their insurance program.
In 2017, the issue of sexual harassment – especially in the workplace – gained greater awareness as accusations of harassment by high-profile individuals were constantly in the news. In many cases, sexual harassment lawsuits seriously impacted businesses and their respective insurers. Employment Practices Liability Insurance not only provides protection against employee lawsuits, but can also help your clients mitigate their sexual harassment risks.