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INDIAN WELLS, Calif.Some commercial accounts renewing property coverage in catastrophe-prone regions in the United States have seen increases in available capacity, say surplus lines insurers and wholesale brokers.
Although increased capacity points to a slight easing of the post-Hurricane Katrina crunch for wind- and earthquake-exposed properties, insurers are likely to remain very selective in providing additional capacity, say the brokers and insurers attending the National Assn. of Professional Surplus Lines Offices' 21st annual Mid-Year Educational Workshop.
And prices for wind- and earthquake-exposed property have not eased from their post-2005 levels even though more capacity may be available for some accounts, NAPSLO members said.
On the casualty side, meanwhile, the surplus lines industry is facing growing competition from standard insurers looking to write more businesswhich points to continued declines in casualty rates.
Some standard-market insurers, who six months ago would only write casualty business that produced at least $100,000, are now writing accounts that generate as little as $15,000 in annual premiums, said Alan J. Kaufman, chairman, president and chief executive officer for Burns & Wilcox Ltd., a managing general agent and surplus lines broker in Farmington Hills, Mich.
Overall, insurance capacity remains tight for coverage of catastrophe-exposed properties, NAPSLO members said. The exposed values are typically large and geographically concentrated and rating agencies continue to demand that insurers reduce their exposures or boost their capital.
"For those reasons, brokers and buyers probably should not expect material changes in pricing trends," said David A. Jordan, senior vp and chief operating officer for Risk Specialists Companies Inc., a surplus lines brokerage that places coverage for Lexington Insurance Co., a Boston-based unit of American International Group Inc.
Others disagree, including some buyers with policies that allow them to cancel coverage midterm, said Glenn Hargrove, president and CEO of Crump Insurance Services Inc. in Dallas. Buyers are taking advantage of the ability to cancel and planning to purchase new policies at a lower rate before the next hurricane season, he said.
"They are hoping that there is going to be (a price reduction) and you know, (the price is) not going to go up," said Mr. Hargrove.
He said he believes the market is returning to a healthier state and pricing likely will improve as capacity eases, especially for upper layers of coverage.
Curt Ross, president of Colemont Insurance Brokers of Georgia L.L.C. in Atlanta, said the market is undergoing a correction with buyers likely to see a few more choices when purchasing coverage this year.
But he, too, expects insurers to be very selective in releasing capacity, and doing so only in cases where insurers find favorable conditions or want to accommodate a top producer.
Don't expect price reductions, however, Mr. Ross said. Should 2007 bring damaging storms, he said that would shape availability of property cat insurance.
Recently, Mr. Ross said he has seen additional coverage obtained by school boards in Mississippi and an account with a commercial building in Palm Beach, Fla. But such examples remain few, brokers say, because mid-year renewals for cat-exposed properties start mainly in the second quarter of the year.
Even so, several NAPSLO attendees said they expect capacity to continue to ease because of events such as Florida. Gov. Charlie Crist signing legislation last month to add up to $17 billion in state- backed reinsurance capacity to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Co.
NAPSLO members said they expect that will drive private-sector reinsurers to move capacity to other parts of the Gulf Coast and California, easing conditions there.
Purchasing conditions for reinsurance have also improved substantially from last year when reinsurers were making up for storm losses.
In July, when Scottsdale Insurance Co. renewed its reinsurance treaties for catastrophe-exposed property policies, it saw its price rise 200% to 300%depending on the layer, said Gary L. Tiepelman, Scottsdale's senior vp of underwriting.
Scottsdale also had to double its retention and "we were not unique," Mr. Tiepelman said.
But insurers that renewed their treaties in January, 2007, saw increases in the 15% to 20% range, said Mr. Tiepelman and other NAPSLO members.