Page 35 - 2016 State of the Market from AmWINS

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PROPERTY
The best illustration of how soft the property market remains in
the real estate segment is seen in carriers’ strong appetite for
multifamily/habitational schedules that, in other times, are difficult “As was the case last year, most buyers in that class can expect
to place.
“A new or expanded hunger for multifamily business is often an
indicator that carriers are searching for premium dollars to offset
rate reductions and/or lost business across the remainder of their
books of business,” says Bob Black, executive vice president
and property broker at AmWINS Brokerage in Atlanta, Georgia.
“More and more carriers are willing to dedicate capacity to this
class at reasonable or even aggressive terms.”
The cause of the soft market in real estate is familiar and two-
fold. On one hand, burgeoning capacity continues to grow,
including from recent entrants Velocity Risk Underwriters (VRU),
Arrowhead, and Navigators. Lloyd’s of London remains extremely
aggressive and alternative capital continues to flow into the
marketplace in search of favorable investment return.
The second driver is favorable overall loss experience in the real
estate segment. “While carriers are experiencing a normal flow
of fire, flood, tornado and hailstorm losses, the combination of
these losses continues to result in manageable loss ratios for
most carriers,” Black says.
As a result, buyers in desirable real estate classes are often
still realizing anywhere from 5 to 12.5 percent rate decreases
with the exception being those accounts that have experienced
significant losses or those which have enjoyed so many years
of pricing declines that their carriers view the account as at, or
close to, rock bottom.
“We are starting to see limited instances of carriers pumping the
brakes to try to slow the rate decline or holding firm on pricing
rather than providing a rate reduction; however, it’s far too soon
to say the market is turning,” Black says.
Accounts that are considered by their carriers to be at
their technical minimum pricing may still be able to achieve
improvement via broadened coverage or deductible concessions
as incumbent carriers position to retain the business. For
example, deductible improvements could be achieved in the All
Other Perils (AOP), named storm, and/or earthquake deductible.
Carriers and buyers are also increasingly willing to enter into
multi-year contracts. “Buyers are beginning to realize that pricing
can’t go down much farther and are willing to lock things in for
a two or three-year period when possible. On the flip side, some
carriers that believe they’re not quite at rock bottom pricing
already are interested in preserving current pricing for a multi-
year period,” Black says.
In contrast to property, the casualty market continues to be tight,
especially for multifamily/habitational real estate accounts in
high-crime areas.
to see increased rates, larger retentions, and exclusions or
limitations on assault and battery coverage. Having said that, the
best-in-class multifamily risks with good loss history might see
a 5 to 10 percent drop in rates,” says Phil Burke, executive vice
president and casualty broker at AmWINS Brokerage in Atlanta,
Georgia.
As seen last year, several markets are capping the amount of
subsidized, elderly, or student housing risks they will accept.
Placing casualty coverage is easier for other properties such
as office buildings, shopping malls, and industrial warehouses.
Exceptions, generally speaking, occur where there is a lack
of building maintenance or security, leading to frequency and
severity of losses. For those troubled accounts, rates are flat
at best and typically increasing, leading retail agents to turn to
experienced wholesale brokers for assistance.
In the past, obtaining first dollar or low deductible coverage on
large schedules was not a problem; however, due to historically
low rates and frequency of claims, that is no longer the case.
“There are very few markets that will now write these accounts
without a self-insured retention of at least $10,000, if not $25,000
or higher,” Burke says. Owners accepting a retention should
consider hiring a third party administrator (TPA) that knows the
real estate sector in order to improve loss experience.
• Real estate insurance rates can be down 5 to 12.5
percent even for reasonably clean multifamily accounts.
• Carriers are increasingly willing to offer coverage or
deductible concessions on property.
• Large self-insured retentions are still common in casualty
for large schedules.