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Survey Report

Insurance Marketplace Realities 2019 — Property


November 6, 2018

Following the record setting catastrophic events of 2017, underwriters will continue to take a more critical look at exposures; adjusting portfolios and appetites accordingly.

Rate predictions

  Trend Range
Non-cat No change or slightly up Flat to +2.5%
Cat Increase +2.5% to +7.5%
Cat with heavy losses Increase +10% or more

Key takeaway

Following the record setting catastrophic events of 2017, underwriters will continue to take a more critical look at exposures; adjusting portfolios and appetites accordingly. In addition to early client engagement, we recommend broad market review to challenge existing solutions, validate incumbent participation and provide competitive program structures, especially in more challenged occupancies or catastrophe-exposed portfolios.

Global aggregate natural catastrophe events of 2018 have been comparatively light, and despite setting records, Hurricanes Florence and Michael will not be significant market events. Absent any significant losses or market changing events through the end of the year, we expect the current rate environment to continue.

  • Estimates of losses from Florence are currently ranging between $1.7 billion to $4.6 billion (source AIR). Due to lower wind speeds, flood rather than wind appears to be the main driver of loss, but the total insurable loss is not expected to adversely impact markets. Loss estimates for Michael, as of this writing are in a similar range.
  • The availability of alternative capacity, which prevented the market hardening many predicted a year ago, remains a significant factor in absorbing these losses.
  • All of the alternative reinsurance capital that was lost in the 2017 major catastrophe events has now been replaced. Alternative capital now makes up a larger proportion of dedicated global reinsurance capacity than ever, with the estimated $82 billion of alternative capital representing over 19% of global reinsurance capacity.
  • The moderating rate environment we have experienced thus far in 2018 has seen exceptions based largely on account-specific cat losses, geographical aggregation concerns, overall portfolio reassessment by underwriters and a hard market for heavily loss-impacted accounts.

Property capacity remains abundant across the industry.

  • Despite ongoing M&A activity and a continued push for optimal use of capital, overall industry capital remains strong. The first of the reinsurance meetings held in September reiterated that there is ample capacity for cat risks. The influx of alternative capacity has created a more stable environment with less volatility following industry losses.
  • We have seen only small segments of hard market activity driven by a few loss-sensitive occupancies and cat-exposed geographies (e.g., Caribbean and Gulf Coast).
  • Heavily loss-impacted regions such as the Carolinas, Florida, Georgia and Texas are likely to see tougher renewals, especially for buyers who experienced losses in 2017 and 2018.
  • Overall industry surplus hit a record high of $752.5 billion and the infusion of capital hampered insurers’ efforts to impose across-the-board rate increases following the 2017 catastrophes.

Global insured losses from disaster events in 2017 were $144 billion, the highest on record.

  • Hurricanes Harvey, Irma and Maria resulted in combined insured losses of $92 billion, equal to 0.5% of U.S. GDP. Preliminary estimates from the Swiss Re Institute indicate that total global economic losses from disasters in the first half of 2018 were $36 billion, significantly down from $64 billion at the same juncture in 2017.
  • California wildfires are emerging as a potential source of mega losses. This year, they have already accounted for $845 million in insured losses.

As carriers continue to struggle to charge desired rates, scrutiny on terms and conditions increases.

  • First-party cyber coverage exclusions are common.
  • We are seeing the addition of small percentage deductibles (1 – 3%) for hail in Colorado, Oklahoma and Texas (hailstorms represent 70% of the average annual property losses from severe convective storms and are on track to cause over $10 billion in losses in 2018).
  • Additional scrutiny on high hazard flood locations has emerged as heavy flooding has resulted in increased losses and demonstrated the vulnerability of portfolios across the globe.

There continues to be a concentrated push by major insurers to right-size portfolios and increase overall profitability.

  • Overall portfolio reassessment and review of geographical spread of risk by insurers is causing pockets of market hardening.
  • Domestic markets and various Lloyd’s syndicates have undergone a complete review of appetites for certain industry classes, with both rate implications and reductions in coverage.
  • Challenged occupancies include dealers open lot, hospitality, primary habitational/multi-family, international food risks, and waste management.
  • London underwriters remain under pressure, with the worst reported results since 2001, encouraging a strict “return to profitable underwriting.”
  • Lloyd’s is demanding that syndicates eliminate the worst performing 10% of their portfolios; as a result, several markets have ceased writing direct and facultative (D&F) property business.
  • Domestic and Bermudian markets have been able to offer more stability in capacity and less volatility in pricing.
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