The U.S. property insurance market is characterised by abundant capacity, but one of the benefits of the growth of alternative reinsurance capital and its appetite for catastrophe risk, alongside ample re/insurer surplus, is the expectation that this will produce a stable property market, according to AmWINS.
The global distributor and servicer of specialty insurance solutions expects that overall the increased appetite of alternative risk capital and high levels of surplus will maintain pricing stability for the majority of clients.
Although poor performing property insurance accounts and classes of business will see upward pressure, as underwriters, and investors, look to achieve risk commensurate returns for property underwriting business.
Of course the levels of capital in the market have also led to disappointment for many this year.
AmWINS explains, “As we enter the second half of 2018, it’s clear that predictions of significant rate increases made in late 2017 have not materialized. Underwriting companies hoping to see a meaningful hardening of the overall property market have been disappointed.”
This has led to come companies losing business, AmWINS said, as those insurers who pushed too hard for rate increases early on have actually ended up losing business, as they were undercut by other underwriters.
There are pockets of rate rises, but largely based on areas of the property insurance market where performance has been poor and there is a realisation that loss ratios cannot be sustained.
Additionally there is the issue of the catastrophe hit regions, of which AmWINS says, “Cat-exposed properties are seeing mid to high single-digit increases, and those that also have adverse loss history or that have lost capacity from incumbents seeking to increase or decrease their cat aggregates can expect more.”
Data is becoming all important in helping a client to achieve better rates, the company explained, saying that brokers who provide the highest quality submissions to underwriters are likely to achieve the best terms for their clients.
“The better, more detailed exposure data we can provide to carriers, the better we can negotiate terms,” explained Harry Tucker, national property practice leader at AmWINS. “Brokers used to think that it was better to provide less information about a risk. Now, with modeling playing such a large role and defaulting to worse case when information is left out, we have found it best to be as granular as possible to obtain optimal results.”
This is also critical for the alternative capital and ILS funds in the excess & surplus or catastrophe exposed homeowner space, as data is key for them to make decisions about underwriting these portfolios more directly, as they look to access property insurance risk from further along the value-chain.
Alongsie the influence of capital, it is data and risk modelling advances that are helping to move the property insurance market onto much more stable footing, AmWINS explains.
But what makes it competitive is the capital and Tucker commented, “In spite of the historic catastrophe season of 2017, the market has remained stable. Alternative capital continues to enter the market at an increasing pace.”
The combination of growing alternative capital, which has an appetite for property insurance risks that are exposed to weather and catastrophes, as well as record industry surplus levels for insurance and reinsurance companies, are raising competition, stabilising rates and also expanding choice.
AmWINS notes that earthquake risks are seeing increasing interest from numerous capacity sources, with capacity available for underwriting earthquake property risks at an all time high.
“New capital is constantly looking to participate in the market,” AmWINS said, stressing that brokers should look to partner with wholesalers that have broad access to the best markets and capacity in order to offer the most compelling deals.
Unless and until there is a significant loss AmWINS expects that additional capacity will continue to flow into the property space, keeping some areas soft, but more generally helping to maintain stable pricing conditions for clients, unless loss affected or underperforming.
While some bemoan the influence of capital on the state of property insurance and reinsurance pricing, it is of course a benefit for the end-buyers of protection.
Stability in the market equals more predictable renewals, which in turn can generate greater loyalty.
For insurers, reinsurers and brokers, the key will be in finding ways to add value and earn additional revenue, alongside the origination, analysis, pricing and underwriting of risk, or to add efficiency to their operating models so the price environment still delivers margins their shareholders are happy with.