Firm real estate and hab market to extend into 2021: AmWINS

Multi-family placements in the real estate and habitational space are requiring more carriers to fill layers and seeing rate increases of up to 40 percent on loss-affected property accounts, while a dramatic cutback in excess casualty capacity is driving pricing to a level that is a “difficult pill to swallow” for insureds.

In its latest state of the market report on the US commercial insurance sector, wholesale broking giant AmWINS said that the impacts of Covid-19 had further complicated placements.

“Throughout 2019, we experienced carriers requiring a combination of rate and deductible improvements in an effort to achieve underwriting profitability in the class,” said Bob Black, executive vice president and leader of the firm’s national real estate practice.

“So far in 2020, and particularly in March, April and May, we experienced upward rate movement in conjunction with greater scrutiny of manuscript policy forms and the coverage provided within a given program.”

On property, the firm noted that the primary and low buffer layers for large multi-family placements in the $250mn-$500mn+ of total insured values (TIVs) range are now “moderately to heavily syndicated”.

“To the extent an account has meaningful losses during the policy year, a string of problematic years of loss history, important incumbent markets exiting the program, and/or undervaluation, a rate increase between 25 percent to 40 percent is a common outcome currently”

AmWINS’ Bob Black

The widely reported reduction in line sizes from several carriers means that more insurers are needed to fill any particular layer, and the larger the account the more syndication is typically required.

All other perils (AOP) deductibles have also climbed significantly from $5K to $50K, to $100K or more as carriers look to reduce the amount of attritional losses impacting a program. Aggregate deductible structures are also coming into play on larger programs to mimimise loss activity.

Meanwhile, underwriters are much more closely scrutinizing valuations, with scheduled limits and margin clauses increasingly utilized for insureds that are unwilling to adjust their valuations to the point where the market is comfortable providing blanket limits, said AmWINS in the report.

In the report, Black said that multi-family accounts with a relatively clean loss record, appropriate valuation and a stable carrier panel are commonly seeing 15-22 percent increases.

“To the extent an account has meaningful losses during the policy year, a string of problematic years of loss history, important incumbent markets exiting the program, and/or undervaluation, a rate increase between 25 percent to 40 percent is a common outcome currently,” he commented.

Increased casualty pricing = less limit bought

Increased claims severity and frequency on primary real estate and hab has led admitted carriers and MGA programs to exit from risks with losses or those in undesirable classes such as senior living, Section 8 or student housing, noted the broker.

AmWINS senior vice president Jack Reid said that accounts that two or three years ago would have been written on a guaranteed cost basis are now in the E&S market having to take large self-insured retentions.

Retail brokers should prepare their clients that they may have to accept SIRs of between $50K and $100K, the executive commented.

Meanwhile on excess layers admitted markets and programs are losing paper or drastically cutting back capacity.

“Historically these accounts on a lead umbrella/excess basis were severely underpriced, making the new, more realistic pricing a difficult pill to swallow for insureds,” said AmWINS.

“Historically these accounts on a lead umbrella/excess basis were severely underpriced, making the new, more realistic pricing a difficult pill to swallow for insureds”

AmWINS on excess casualty pricing for real estate and habitational risks

Reid added: “At the previous rates, carriers would have needed to write accounts for 100 years claim-free in order to make up for one limit loss.”

Although full limit losses are still rare in the class of business, an uptick in major single bodily injury events such as drownings, shootings, assaults, fires and serious slip and falls means the loses have bled into excess layers making the accounts unprofitable for insurers.

“It’s very rare to see anyone writing the full lead $25mn anymore and it often takes three to six carriers to replace it,” said Reid.

“This leads to a significant increase in layering, similar to what has been seen in excess auto, and rate increase at three times to 10 times expiring,” the executive continued.

He warned that the extent of pricing increases for casualty cover has led many insureds to simply buy less limit.

“Some are simply looking to buy limits that would cover litigation and settlement should a serious claim occur, such as a fire or death on-site,” Reid reported.