Listening for Property to Pop

The property insurance market is a catastrophe for carriers these days, as it's anybody's guess when the market will harden and rates make underwriting profitability possible.

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

BOSTON---At the beginning of 2010, word was that one very large player out there, and we will not name names, was looking to move some of its book of property insurance business in catastrophe-prone areas. The insurer supposedly had too much aggregate exposure to quake and windstorm for somebody's tastes.

Beware of the Spike (08/01/11)
Property Market Jolted (08/01/11)
New Model Leaves Insurers Black and Blue (08/01/11)
Living in a Post-Sandy World (01/23/13)
Catastrophe Rates up, Capacity Down at Midyear (07/05/11)

Here is where the story diverges a bit. Some of these CAT risks were good business, according to one source, so this was good news to the insurer's competitors. They were waiting to see just what and when this large carrier shed its CAT book. But now it appears that the carrier has changed course and instead of shedding business it is now renewing it at lower rates.

Or maybe not. Another version of the story is that the carrier tried its best to get rid of this business. In its current state, the carrier cannot afford to be overexposed in the Gulf Coast and in California. But it was having a hard time finding takers. And that if takers should appear, this carrier would still be glad to hand off the business to somebody else.

Another version has more than one insurer with this overexposure problem, with them being able to address that.

Such is the state of the property insurance market. It is a guessing game. The market has left underwriters to shrug their shoulders, whereas last year they were more actively beating the mantra that higher rates were--and should be--on their way.

Back in early 2009, according to property underwriters and insiders who spoke with Risk & Insurance® last week at the annual conference of the Risk and Insurance Management Society Inc., property rates did appear to be firming. So that explains why at RIMS last year they were sending out the message to risk managers to be prepared for it.

But so the story goes, the second half of 2009 saw softening again.

"The reality is, they made a lot of money," explained Al Tobin, national property leader at brokerage Aon.

"The hard market didn't show up that everyone planned on," said Bob Petrilli, managing director and head of IRI Americas for Swiss Re.

Underwriters report rate drops of 5 percent to 7 percent on average to as high as perhaps 15 percent. Double-digit drops could be expected at renewal if insureds haven't had recent losses.

"The market is clearly very competitive," said Jonathan Hall, executive vice president with FM Global.

Besides rate decreases, some property carriers have also lowered their deductibles for windstorm and quake and loosened their terms and conditions, reported Jon Murphy, head of global property at Ironshore.

In such a state, is it a matter of time before the market pops? What sort of megadisaster would it take to cause it? Again, the underwriters shrug their shoulders. It's anybody's guess.

Speaking of guessing, can you guess who the big CAT-exposed carrier (or carriers) is?

April 28, 2010

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