E&S property to harden into 2021: AmWINS

There is no sign of momentum easing in the hardening E&S property market with early 2020 rate increases in the 10-20 percent range for non-cat business and accounts with cat exposure and poor loss experience paying 20+ percent increases, according to wholesale broker AmWINS.

“As we head into 2020, the same market factors from 2019 are still in play, with the ultimate objective to return the book to profitability,” said the firm’s national property practice leader and executive vice president Harry Tucker.

The broker added that until profitability improves, the market will continue to see pricing, terms and conditions that benefit carriers.

That means buyers face rate increases, discretionary limit deployment and tougher terms and conditions through this year and into 2021.

In the report, AmWINS noted the unusual dynamics of the current property market, where capital is stable and “the ‘transitioning’ market is not what has been considered a ‘hard’ market in the past”.

“Indeed, the property market does not lack available capacity; rather, carriers’ conservative limit deployment and a de-risking strategy largely contribute to current tight conditions,” it said.

Capacity in tougher classes has retrenched, however, on the back of claims severity and frequency, particularly in areas like multi-family residential, hospitality, food processing, wood/lumber accounts and recyclers as carriers look to de-risk their portfolios.

Another driver is the expected increase in reinsurance costs for 2020 renewals. The broker expects to see an increase in reinsurance rates and reduction in line size at the upcoming US wind renewal with insurers likely to pass the cost along to the original insurance buyer.

“The extent of rate increases will be better assessed after the larger domestic cat treaties renew at 4/1 and 7/1,” said the report.

Loss creep impact

Loss development on what had historically been viewed as short-tail business is also impacting property insurance.

“[Loss creep] is changing how markets view property risk. No longer is it just the ‘magnitude’ of losses that are considered: underwriting assumptions around perils that had traditionally been viewed as attritional, rather than catastrophic, are changing”

AmWINS on the lengthening tail of property insurance risk

“Other industry sources have also indicated that the magnitude of loss creep for virtually every major peak peril loss sustained in the last two years has surprised the market, and losses continue to develop adversely.

“This is changing how markets view property risk. No longer is it just the ‘magnitude’ of losses that are considered: underwriting assumptions around perils that had traditionally been viewed as attritional, rather than catastrophic, are changing,” said AmWINS.

In the report, the broker highlighted energy, cargo, hospitality, food and beverage manufacturing, and auto physical damage as classes of business that have seen notable challenges or changes.

Energy and cargo

It said that after a fourth straight year of unprofitability, hardening in the energy market has accelerated, with upstream and midstream accounts seeing increases of up to 20 percent for cat-exposed accounts and downstream accounts even harder hit.

“Conditions will get worse as the year goes on because of the unprofitability underwriters faced in 2019,” said Alistair Barnes, executive vice president in AmWINS’ energy practice.

Meanwhile the cargo market – and specifically the stock throughput line – went through a “massive correction” in 2019, as many Lloyd’s underwriters ceased writing accounts in the fourth quarter after hitting their income limits.

“In 2020, new business will be written, but underwriters are already being much more selective so they don’t find themselves in the same situation as 2019, where they had exhausted their premium income limits toward the end of the year,” said Toby Kayll, managing director of the marine and energy group at the firm’s London broker THB.

Hospitality, food and beverage manufacturing

In hospitality, buyer experience varies significantly by geography and loss history. Some accounts are seeing 5-10 percent rate increases and changes to hail deductibles, for example, while risks in peak zones like California and Florida that have loss history are seeing significantly bigger hikes.

Capacity pullbacks mean that accounts previously written with a single carrier now require multiple carriers in a tower to complete.

In food and beverage manufacturing, there has been a flow of accounts into the E&S market as standard markets have de-risked due to hurricane and attritional losses, said AmWINS.

That has led to rates rising in the multiples, generally well over 20 percent, according to executive vice president Theresa Lally.

“This constricted capacity requires additional restructuring of accounts and introducing new carriers with many additional layers/quota shares to reach the necessary limits,” she said, adding that 2020 is expected to see more of the same with potential for additional constructions in capacity.

Liquor problem

AmWINS highlighted liquor accounts as being particularly difficult, in part because of the $50mn claim from the Jim Beam factory fire last July.

Previously, stock had been placed in the standalone stock throughput market in Lloyd’s, but the hard market in that line meant that the strategy is less economically viable than in the past.

That has led to cover being pushed back into the property placement, where rate increases can be double or triple expiring.

Pricing is also going up significantly in the monoline auto physical damage segment.

As well as pushing for rate increases, underwriters are looking to restrict coverage, including changing from a per-occurrence to a per-unit deductible and pulling back on towing limits.