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Commercial property insurance activity during the year-end/new year renewal season tells a tale of two markets.
While rates are going up in the 5% range generally, some noncatastrophe-exposed accounts with good loss records in some cases are continuing to experience flat to even slightly lower rates, according to market observers.
But the story is far different for accounts with catastrophe exposures, particularly those with a poor loss history, which can experience increases of more than 10%, they say.
Those accounts face “head winds,” said Alfred Tobin, national property leader for Aon Risk Solutions in New York. “It's been a tough year for carriers.”
“If you have claims and you need a lot of capacity, you're going to have a challenging time,” he said.
Still, the market is not hard—at least not yet.
The market is “firming,” said Jon Hall, executive vp of Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. “It's certainly not soft any longer, and I don't think it's turned a corner where you would call it a hard market.”
The market is “certainly transitioning,” said Joe Tinetti, head of property for global corporate in North America for Zurich Financial Services Group in Schaumburg, Ill. “The rates are definitely going up. I wouldn't call it hard—there is still an enormous amount of capacity that is available.”
“Our total book of business was up 1.7%, but cat accounts are up an average 6.7%,” said Duncan Ellis, managing director and U.S. property practice leader at Marsh Inc. in New York.
Accounts that have had no losses and have little natural catastrophe exposure are experiencing rate increases of up to 10% in the year-end renewal season, while accounts with losses and high natural catastrophe exposures are seeing rate hikes of more than 10%, said FM Global's Mr. Hall. He added that FM Global's retention rate has hit a historic high of 98%.
Dave Finnis, national property practice leader and executive vp at Willis Group Holdings P.L.C. in New York, said catastrophe-exposed accounts are experiencing increases of 5% to 10%. “It's hard to find a cat account that's getting any rate decreases at this point,” he said.
“We want to continue to improve our portfolio; we're pushing rate, but we're also looking at valuation,” said Tim Rose, senior vp and chief underwriting officer at Liberty Mutual Insurance Group's national property accounts unit in Weston, Mass. “We're pushing loss control in order to improve the portfolio of our business.”
Accounts that are not exposed to catastrophes and that have a favorable loss history are experiencing modest rate increases at most, ranging from flat to 5% increases, said Zurich's Mr. Tinetti. “If the customer chooses to take it to market, they could probably get a 10% reduction.”
That's what Carolyn Snow, director of risk management at Humana Inc. in Louisville, Ky., discovered when she marketed her property account for the first time in nearly a decade.
Ms. Snow said a claims disagreement with the company's property insurer of nine years led her to take her account to market. “Our position has always been that if you stay with one carrier for a period of time, you can get the advantage of market smoothing,” she said. ”Decreases are not as big, but neither are increases.”
Ms. Snow did not ask Humana's incumbent insurer, which she declined to identify, for a renewal quote but instead selected three new companies, all of which offered quotes.
“One was not competitive, one was OK, and the winning proposal was very good,” she said. Humana got a “slight rate reduction, doubled our loss limit but more importantly” received improvements in its flood/earthquake/wind sublimit, said Ms. Snow. “The coverage improvement allowed us to eliminate a couple of our (difference-in-condition) policies. Even though we had an issue with our incumbent carrier, it is still our position that, when possible, long-term partnerships are the best for all parties.”
Another risk manager with hurricane exposure also reported a favorable renewal.
“It went very well, despite being in a windstorm area. We had a slight decrease, less than 5% in terms of premiums,” said Wayne L. Salen, director of risk management at Palm Beach Gardens, Fla.-based Labor Finders International Inc. “We haven't seen the impact of catastrophes.”
But some classes of business are feeling the pinch more painfully than others, said Alexandra Glickman, area vice chairman of Arthur J. Gallagher Risk Management Services Inc. in Glendale, Calif.
“In certain asset classes, large-lines real estate, we've seen an inordinate amount of damage in the multifamily sector,” she said. “For 2012, the insureds have to recognize that they're participating in a worldwide insurance pool. There is no isolation, and if losses are less than pristine or if they have a highly cat-driven portfolio, we expect rates to be 8% to 15%” higher, she said.
Looking ahead, Marsh's Mr. Ellis said further erosion in loss figures would have an impact on the market.
“I firmly believe this firming of rates is more a financial issue around an insurer's property book of business,” he said.
Insurers are dealing with very low investment returns, he said. “Pricing isn't where it necessarily needs to be. “
For risk managers, “it's all about data” when approaching underwriters, said Marsh's Mr. Ellis.
“Make sure you have correct values, make sure your values make sense,” he said.
He said Marsh advises risk managers to spend the time to make sure information is accurate and up to date, and to highlight the positives of the account, showing underwriters how the risk is “better than it was last year.”
There were some rate increases for reinsurance buyers during Jan. 1 renewals, though the increases were patchy according to location, line of business and loss experience, experts say.