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Environmental liability insurance market stabilizes on increased capacity

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Environmental liability insurance market stabilizes on increased capacity

The overall environmental liability market has stabilized, offering adequate capacity and competitive rates. As the traditional market has matured, more insurers are turning to nontraditional buyers, including schools and hospitals, and focusing on multinational business to generate growth in premiums, observers say.

Rich Wagner, New York-based-global chief environmental underwriting officer at American International Group Inc., described the market as “sophisticated and robust,” adding, “I wouldn't describe it as rapid growth, but I would describe it as consistent growth.”

An improved economy also has helped the market, said Craig Richardson, Philadelphia-based senior vice president for environmental risk for Ace USA.

Bob Newmarker, Boston-based head of environmental sites at Zurich North America, said the sector “remains a fairly competitive marketplace, given the increase in capacity that's happened over the past four to five years.”

Rates are “still sort of all over the place,” Mr. Newmarker said. “It really depends on the class of business. It depends on what the capacity is, what the limit is; and it depends on term length.” At the same time, he said, “we're starting to reach the point of having an overall leveling off of rate decreases” after experiencing “pretty sizable rate decreases over the last five or six years.”

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Richard Sheldon, environmental practice leader at Willis North America Inc. in New York, said there are certain business areas “most carriers are still very desirous of, including annually renewable middle-market contractors and site-specific business.

“These are bread-and-butter accounts in the industry, so I think from a competitive standpoint, that area of the business is still very competitive,” Mr. Sheldon said.

Some observers report, though, that insurers are reducing capacity and policy periods for site-specific business, to $25 million in coverage from $50 million, and from 10 years to five. However, Matt O'Malley, Exton, Pa.-based president of XL Group P.L.C.'s environmental business, said the insurer continues to offer the full $50 million in environmental liability capacity.

“I think some of the more mature markets have continued to offer the 10-year term at least,” including XL, said Mary Ann Susavidge, Exton-based executive underwriter for environmental at XL.

Observers say while competition remains strong, few players have entered or departed the market recently.

Steve Goebner, Philadelphia-based vice president and environmental contractors segment leader at Zurich, said it seemed that three or four new entrants came into the marketplace annually for several years. recently, though, “we've sort of seen that slow down a lot the last couple of years.”

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Jayne Cunningham, Beazley P.L.C.'s New York-based focus group leader for environmental, said after five years of “chaos” since entering the market, the economy has picked up and “new markets have settled into their own particular niches. It's definitely stabilized.”

Meanwhile, insurers are seeking to move beyond the petrochemical and other energy companies that traditionally have been the focus of environmental liability.

Mr. Sheldon said the market for buyers required to obtain coverage by contract or because of a statutory obligation is finite. As a result, insurers have been looking into other areas to expand their business. That includes health care, education and real estate, where there are “legitimate environmental exposures,” such as mold and Legionnaire's disease, he said.

“That's a continuation of the maturing of the marketplace,” said Chris Smy, Marsh Inc.'s Atlanta-based global environmental practice leader.

“Ten or even five years ago, environmental insurance was specified as something organizations that had the potential to pollute would purchase and nobody else, whereas we've seen the concept of environmental risk broaden to indoor air quality and a whole host of exposures that do bring a lot more organizations into the area of perceived potential risk,” Mr. Smy said.

Mr. Wagner said universities and schools have risks not just with mold but also with respect to their energy-generating plants and laboratories, which in many instances handle hazardous chemicals.

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Educational facilities also generally are large property owners with frequent building projects, “and have all the same risks” that project owners have, Mr. Wagner said.

Superstorm Sandy raised the level of interest in these products “because a lot of classes of business that traditionally didn't think of themselves as exposed found themselves with situations where they had underground garages and basements that were contaminated with fuel oil and other contaminants as a result of the storm and flooding,” he said.

Multinational environmental business is another potential growth business.

Mr. Sheldon said U.S. companies are “obviously very environmentally conscious” and “carry their risk management philosophy with them” as they move outside the U.S. to do business, even if there are no local statutes or regulations.

“As the market gets stronger, we're seeing more and more transactional opportunities, more (merger and acquisition) activity,” said Zurich's Mr. Newmarker.

There has not, however, been a major source of claims, observers say.

“There really isn't something that stands out as a large class” in this space that drives claims, said Mr. Wagner.

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