Page 6 - 2016 State of the Market from AmWINS

46 | AmWINS State of the Market
PROPERTY, continued
segment to place as recently as two
years ago, but have become increasingly
important as E&S carriers canvass the
marketplace for new sources of premium
volume. Overall, retail brokers should
expect to see multifamily accounts achieve
rate decreases in the mid to upper single-
digits, with even higher rate reductions
for best-in-class multifamily accounts and
desirable real estate business.
“The majority of real estate accounts,
multifamily excluded, continue to be
highly desirable for the E&S marketplace,
generating substantial premium with
controlled losses. Many carriers believe
this class of business can generate their
best overall results,” Black says.
“Lloyd’s has been aggressive in the real
estate space, particularly in the past
several years,” says Steve Knight, director
in the worldwide property division at THB
Group in London. “Having said that, I
think they are getting down pretty close
to the bone.”
Buyers are definitely benefiting from
aggressive underwriting appetites in
catastrophe-prone regions. In particular,
there has been a trend toward lower
deductibles in both hurricane and
earthquake-prone regions.
“There has been a noticeable shift over the two and/or three.
last 12 to 18 months,” says Jeff McNatt,
executive vice president and property
broker at AmWINS Brokerage in Satellite
Beach, Florida. “The 5 percent deductibles
for coastal hurricane and California
earthquake that have been commonplace
for years have shifted downward
meaningfully. Deductibles as low as 2 or 3
percent are now often available.” Calendar
year deductibles, deductible caps, and
hurricane (instead of named storm) wording
all continue to increase in popularity.
Gulf Coast and Southeast wind-driven
business is highly competitive, with an
abundance of new capacity and lack
of loss activity being the main drivers
behind this trend. Competition for
condominium business in South Florida
is as aggressive as it has been in quite
some time. A recent development is
that minimally capitalized, admitted
carriers are actively trying to seize an
advantageous interpretation of state
insurance regulations by pursuing
business that has traditionally found a
home only in the E&S marketplace.
The story is not much different in the
Carolinas and the Gulf states, where
a further relaxing of underwriting
guidelines and rate reductions
continues. There is significant market
appetite for newer frame construction,
with carriers even willing to drop
restrictions on barrier island business.
Across the country, rate reductions on
best-in-class business can be as high as
mid-double-digits.
Rates for California earthquake are
likewise depressed due to a massive
amount of capacity and the lack of
any substantial earthquake activity for
more than 20 years. As in other areas
of property, buyers are either pocketing
the savings or keeping premiums level in
return for lower deductible retentions. In and terms which are often broad. Some
some cases, carriers are willing to offer
multi-year placements of up to three
years in an attempt to lock in a revenue
stream and eliminate competition in year
TERRORISM
Early last year, the Terrorism Risk
Insurance Act (TRIA) was extended
through 2020 with the signing of the
Terrorism Risk Insurance Program
Reauthorization Act (TRIPRA), resulting
in widespread availability of terrorism
coverage, with the exception of high
target areas and venues. The market
segment is vibrant despite ongoing
concerns and recent terrorist activity
outside of the United States.
Global capacity for standalone terrorism
coverage exceeds $4 billion. Pricing is
anticipated to remain flat in high target
areas with reductions in the upper single-
digits in lesser-exposed locations.
With U.S. reinsurers reporting very
low loss ratios due to the absence
of notable catastrophic events,
reinsurance remains plentiful and rate
reductions of 10 to 25 percent are
common. Pricing for earthquake and
wind continues to be particularly soft,
with California earthquake at historically
low levels while most large wind
placements are oversubscribed. High-
hazard flood may be the one peril that
concerns carriers and reinsurers due to
the lack of modeling confidence and the
unpredictability of the peril.
The facultative property market continues
to be aggressive in writing new business
with an increasing amount of business
being placed through the retail broker
channel in lieu of direct reinsurance
placements. Treaty renewals are
expected to be soft due to the continued
influx of private capital.
There are indications that property
reinsurers are reaching the bottom of their
technical pricing, including rate reductions
carriers are returning money to investors
and conducting significant buy backs of
their own stock — both of which are signs
of an inability to generate needed returns
at current pricing levels.
However, as long as capital is willing
to invest, reinsurance will continue
to be a buyers’ market. “The influx
of capital remains the greatest threat
to the traditional reinsurance market
until large catastrophic events test the
fortitude of new financial players,” says
Richard DiClemente, president of THB
Intermediaries.
“Consolidation in the property reinsurance
space will continue as capacity is simply
too abundant, which will continue to
outstrip demand in many areas.”