Posted in News on 05 Sep 2019

In our view, the ‘direct and facultative’ (D&F) property market is continuing to see an overall increase in rates during H2 and in many cases, increases in deductibles, plus limitations to other terms and conditions, as carriers look to return to profitability in 2019 and beyond.

It would appear that we are currently operating in a 'transitional marketplace'. By that, we mean that rates and terms are increasing for clients but in general terms, not in a manner that is totally reminiscent of a typical ‘hard market’ - although those clients in challenging sectors such as Hospitality and Multi-Family residential may not be in total agreement.

Generally, carriers are either not making any significant returns, or are forecasting slim profit margins for 2019. Profit is being prioritised over premium income at the present time by all carriers. Due to the amount of rate that carriers have conceded, over a prolonged market period prior to the catastrophic ‘HIM’ event of 2017, they do not yet consider rating levels to be at a sustainable level where they can obtain necessary returns.

THE MANY FACTORS AFFECTING CLIENT RENEWALS DURING 2019


100% and Large Subscription Carriers – Many markets writing 100% on full value basis have either declined to renew certain client’s business, or priced themselves out of the renewal. This has forced brokers to seek alternative new capacity within the E&S market on a subscription basis.

CAT Adequacy – Some accounts have been deemed not be rated adequately by underwriting management, leading to either non-renewals or major pricing changes / capacity reduction. The cost of purchasing reinsurance has been highlighted with some of those accounts, where the individual accounts are deemed to be under the premiums required by their individual model output(s).

Loss Frequency – Accounts with significant loss activity have seen more than average rate increases, and many have also seen increases in deductibles / self-insured client retentions. With attritional loss ratios considered too high by underwriting management, accounts have come under additional further scrutiny this year.

Convective Storm losses – There are a large number of clients which have suffered wind / tornado / hail losses outside of hurricane season and for significant loss amounts. This has resulted in their underwriting partners (whether they be long-term or more recent) for admitted market or surplus lines to consider their individual appetite for these renewals going forward. This is not just limited to the apartment business - we have seen a considerable amount of new business emanating from the public and educational sectors.

Market Dislocation – Whether it’s ‘Decile Ten’ or premium Income limitations from Lloyd’s, or re-calibrating from USA domestic and MGA carriers, there have been shortfalls to replace in most multi-layered renewal programs, which has created additional market pressure in obtaining new aggregate from new participants within the market.

Treaty Reinsurance – Reinsurance costs are increasing and those additional costs are being factored into renewals. Outside of any challenges that may be brought about by the ‘hurricane season’, ‘Jebi’ loss creep is having an impact upon the reinsurance market and overall underwriting results at the half-year. The ‘retro market’ will also be impacted at the next major renewals with the closure of CATCO, even though their owner, Markel, will be opening a new Retro business unit. The loss of CATCO will lead to an increase in demand for capacity from the more traditional reinsurance channels.

Underwriting Discipline – We’ve generally seen a return of underwriting discipline to the market place during the first half of 2019. Markets are all experiencing similar market difficulties and amending their individual underwriting appetite(s) accordingly.

CONTINUED MARKET RATE INCREASES?


From recent discussions with underwriting management at specific London carriers, we understand that they will continue to look for rate improvements well into H2 of 2019 and have already incorporated rate increases into their 2020 business plans. Due to the relatively slim margins that carriers are currently operating under for all classes of business, overall underwriting results will also have a business impact.

However, with the current trend for ‘D&F’ rate movement being in the ascendancy, carriers will be looking for additional capital to support their current underwriting appetite. Whilst we have not heard any rumours of many new entrants, one such new market which has started during 2019 is Convex. We anticipate that they will commence underwriting at some time during Q4. With significant capital, we would anticipate them deploying significant new capacity on programs out of their office in London. They have recently hired several well-known senior market underwriting practitioners in order to look to achieve their ambitions as being one of the major London markets. Whilst competitor markets will not be relishing the introduction of a major new carrier, Convex are no doubt a major new entrant whom will benefit our clients’ renewal programs.

As ever, it is important to understand that underwriters will continue to differentiate terms between individual clients, as we look to construct the most cost-effective insurance programs for them all.

For more information, please contact

Mark Hubbard | Managing Director,
Wholesale Property

T +44 (0)20 72 04 62 38
E Mark_hubbard@alescorms.com

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