Fac writers and Bermuda step in as property writers retrench: CRC

Rate increases in the US property market as existing markets retrench are attracting new carriers and facilities as well as capacity from facultative reinsurance, alternative capital and Bermudians looking to fill gaps in placements, according to CRC.

In a report on the E&S property market, the wholesale broking giant said that rates are rising on average in the range of 10 to 25 percent, with steeper increases on more complex renewals and challenged classes.

“Retrenchment and selectivity are the bywords in the property market as insurers re-examine their books of business by reducing exposures and aggregations, tightening terms and conditions, and backing away from occupancies and geographies viewed as too risky.

“The increased selectivity among markets means that even smaller accounts are being layered and larger ones are requiring more participants to complete,” said CRC.

The Truist Insurance Holdings subsidiary reported that retrenchment is hitting all classes of business, as it highlighted habitational, heavy manufacturing, recycling, food-related products and frame construction as that are more difficult.

“Increases in premium are being driven in large part by the fact that carriers have become more conservative in their limit deployment for any single deal.

“Historically, markets that offered $25mn on an account in an excess position may offer only $5mn or $10mn, making it necessary to bring in more carriers,” said CRC.

It added that fewer markets are prepared to provide single, stand-alone coverage, and programs that need to be restructured in order to secure the same overall limits may see much higher rate increases.

“Retrenchment and selectivity are the bywords in the property market as insurers re-examine their books of business by reducing exposures and aggregations, tightening terms and conditions, and backing away from occupancies and geographies viewed as too risky”

CRC on property market dynamics

CRC also noted that smaller accounts previously the domain of the standard market are having to access the E&S market for the first time to complete placements and that is leading to more of those accounts being layered.

Carriers are also pulling capacity in tougher processing risks, which means shared and layered placements are required for those accounts too.

Meanwhile, for high hazard manufacturers like food and recycling that have bad loss histories there may not be enough capacity to fill out programs, leaving insureds having to retain more risk to duplicate the limits they had on their expiring covers.

“While existing markets retrench, rising rates are drawing interest from new carriers and facilities as well as alternative capital. Facultative reinsurance capacity has been coming into the market for both middle market as well as larger shared and layered accounts.

“Some of this reinsurance capacity is competitive and is helping to soften the overall rate increases for some clients. Bermuda has been more active, and not only for the largest clients, with more Bermuda capacity on all layers or high loss placements,” said the report.

CRC added that new start-ups and facilities – including those targeting property cat – may help fill gaps in placements, while after retrenching over the last couple of years Lloyd’s may look to deploy more limit to US cat because of improved market dynamics.

Longer turnarounds

As previously reported, a key development over the last 18 months has been the surge of business into the E&S market via the wholesale channel.

And in its report, CRC said that in property the significant increase in submission volume combined with heightened underwriting scrutiny from carriers is leading to much longer turnaround times for proposals.

“Underwriters are revisiting pricing, instituting carrier-mandated changes (i.e. forms, deductibles, protective safeguards, etc), qualifying manuscript forms, and reviewing insurance to value more closely,” the broker observed.

It added that the tougher risks are subject to approval from management as well as underwriters, with more questions about rates, terms, and conditions.

“Amid the heightened scrutiny, it has become more time-consuming to ensure consistent terms, conditions and sub-limits among various carriers on shared and layered programs,” said the firm.

Segment specific dyncamics

Property cat

In its sector-by-sector coverage in the report, CRC said that although there is sufficient capacity overall for property cat coverage, carriers are favouring new construction and implementing “extreme underwriting discipline” on older beachfront properties, particularly in South Florida, as they look to trim loss making accounts.

Rates and deductibles are up across the board, with some clients willing to take higher deductibles to offset premium increases. A 5 percent deductible is now the new norm, said the firm.

Convective storm

In hail-prone areas of Texas and Oklahoma, deductibles are a minimum of 2 percent and sometimes 3 percent depending on the location. Although rate increases have moderated to the 10-15 percent range, the extent of the increase depends on the specific program, with accounts coming into the E&S market for the first time set for higher increases.

Percentage deductibles are being applied to wind and hail-exposed accounts across the Midwest.

Flood

Flood coverage remains challenging for buyers, with rate increases above 20 percent in excess of the National Flood Insurance Program and with business interruption waiting periods.

Quake

CRC reported that some carriers are actively looking to reduce aggregations, increase rates or deductibles, and/or cut capacity at renewal.

Reduced capacity is leading to re-layering of accounts, and in some cases deductibles have doubled on renewal.

Habitational

Underwriters have focused on valuation of frame habitational risks after large losses in 2017 and 2018 revealed inadequate reported values. Higher valuations entered into cat models tend to raise potential modelled losses, which makes carriers more reluctant to put out larger limits on excess layers.

Habitational specific markets are seeking rate increases in the 10 to 15 percent range, with carriers looking for higher deductibles for all-risk or water damage on larger deals.

Wildfire

Following 2017 and 2018 losses insurers are selective, particularly in wildlife-urban interface areas, with modelling increasingly key as underwriters measure wildfire scores on accounts.

Builder’s risk

Frame projects are increasingly difficult with fewer carriers willing to offer substantial capacity and seeking higher pricing and stricter terms.

Higher rates are drawing interest from new entrants, however.

Manufacturing, processing

Carriers are limiting capacity in tougher lines of business and prices are substantially increasing, particularly for non-sprinklered occupancies.

Tougher high-hazard classes require a full market effort and a shared and layered approach.