US commercial property rates may level out in Q4: AmWINS

US commercial property rates may level out towards the end of this year, casualty capacity will be further reduced by Covid-19 and losses are expected in professional lines, according to AmWINS.

The wholesale broking giant in a Q2 state of the market report said conditions will continue to be impacted by impending pandemic losses, the overall state of the US economy, possible resurgence of Covid-19, property damage from riots and predictions of a higher than average hurricane season.

For commercial property, AmWINS anticipates that rates will continue to increase between 10 percent and 25 percent year over year, depending on the level of catastrophe-exposure. For accounts that are cat-exposed with losses, rates are increasing 30 percent or more.

“Insureds can find some consolation in that rates may level out toward Q4 2020 as the businesses that took the brunt of rate increases at the beginning of the cycle come up for renewal,” said Harry Tucker, AmWINS’ national property practice leader.

In the casualty space, AmWINS said capacity restrictions within excess are the most prominent. Covid-19 has added more pressure to a sector that was already seeing increasing rates and reduced capacity.

And in professional lines, underwriters are tightening coverage across most lines regardless of whether an account is affected by Covid-19. With losses expected, insurers are forcing through substantial rate increases.

“Underwriters are asking many questions about how the insured is handling their business and workforce during the pandemic and reopening phases,” said David Lewison, AmWINS’ national professional lines practice leader.

The report also analysed specific areas of the market.

Construction

The leading concern for the construction sector is the mandatory stoppage or idling by government entities, reported AmWINIS.

Wood frame projects continue to be the most challenging class of business due to continued attritional and industry shock losses from previous years and the first two quarters of 2020.

For builder’s risk, AmWINS reported no signs of long-term change to capacity, rates or carrier appetite despite the Covid-19 uncertainty. Deductibles continue to increase across all project risks with the most severe pressure on water damage.

“The North American builder’s risk market continues to exhibit moderate signs of firming, though not to the degree seen in the fixed/operational property marketplace,” said Grant Chiles, executive vice president with AmWINS in Atlanta. “Ample domestic capacity continues to drive competitive terms for desirable project risks.”

For casualty, construction has been one of the most affected areas because of the already limited number of carriers writing residential projects. The remaining carriers have reacted to Covid-19 by reducing capacity, requiring higher attachment points or exiting completely.

“We are also seeing short limits and most carriers wanting to move up in the tower,” said Terrence Villar, executive vice president with AmWINS in Los Angeles. “There are very few carriers playing in the lead $10mn layer. In the E&S marketplace, it can take three to four markets to fill out the lead $25mn at three, four or even 10 times the expiring rate.”

In contrast, capacity in the architects and engineers professional space is more than adequate with many carriers writing on admitted paper. Underwriters have become more discerning, however, with a significant number of carriers looking for rate increases of 5 percent to 10 percent at the next renewal.

Many carriers are pushing to add a communicable disease exclusion, which AmWINS said is problematic for general contractors.

“Carriers have not been as willing to amend policy sales estimates mid-term, leaving insureds to wait until after premium audit to obtain an adjustment,” the report said. “To offset increased renewal costs, which can jump from 1.5 percent of the total project cost to 3 percent for the same limit, some insureds are buying lower limits or exploring higher deductibles and self-insured retentions.”

D&O

Covid-19 has added to the increased D&O claims cost and frequency in the past few years. AmWINS reported many insurers have already received Covid-19-related claims, arising from layoffs, alleged securities violations, bankruptcies, breaches of contract and more.

The previous expensive and restrictive D&O conditions for IPOs before the coronavirus outbreak have not changed but the pandemic has slowed the timetable of IPOs going to market. IPO-driven D&O buying has slowed noticeably as well.

In general, AmWINS said insureds are looking at 25 percent to 50 percent rate increases, with little to no room for negotiating terms and conditions.

“Accounts that were straightforward and could essentially name their own terms a year ago are now proving to be very tough, with numerous markets declining even to quote,” says Matt Shanks, executive vice president with AmWINS in Atlanta. “Go-to writers of difficult risks have started to pull out of the space entirely.”

Many insureds are buying less limits, with some carriers willing to return premium if limits are lowered mid-term.

Only a few D&O carriers have added communicable disease exclusions to date, primarily on private and healthcare policies.

Energy

AmWINS said the energy marketplace remains challenging with carriers paying close attention to engineering reports. Insurers are asking any questions on energy accounts to determine how viable the business is and how maintenance is being handled.

For property, carriers are exiting the energy space for midstream and downstream power generation accounts entirely or cutting their capacity, causing coverage to be prohibitively expensive.

“Facultative reinsurance is also not available like it used to be, and only one market is maintaining its current capacity,” said Alistair Barnes, executive vice president with AmWINS in Houston.

On smaller upstream and energy servicing accounts, a lot of business is moving from London facilities back to the domestic markets because London underwriters are implementing new minimum premiums and deductibles across their book.

In casualty, the most challenging market is excess liability. AmWINS reported 20 percent or more rate increases and many carriers cutting capacity, making it difficult to place midstream accounts.

The market for mining and coal-fired power is continuing to harden and capacity is becoming

AmWINS said a $60mn western Texas hail event plus several smaller notable events have significantly reduced natural catastrophe property capacity for wind and solar accounts. There has also been an imposition of sublimits for wind, hail, thunderstorms, tornadoes and wildfire.

The report said insureds in recent weeks have begun to file Covid-19 claims. Carriers have begun to impose Covid-19 exclusions on renewals, tighten up their virus and infectious disease wordings, and reduce limits.

“Carriers are taking a tougher stance on the business interruption margin clause, partly in reaction to the way margins can change quickly and dramatically in this economic environment,” Barnes said. “This is prevalent for refining and power generation clients.”

Healthcare

Pricing in the healthcare segment continues to rise, driven by losses and conditions pre-Covid-19.

“Markets have become more restrictive on classes such as home healthcare, hospice, physicians and hospitals,” said Phil Chester, senior vice president with AmWINS in Farmington. “Excess capacity continues to firm up, with markets cutting limits at renewal for many classes.”

Many carriers are taking a wait-and-see approach to healthcare accounts because of the potential for future Covid-19 litigation. Most carriers are requiring the completion of an infection-control protocol application for nursing home accounts.

The hardest hit healthcare sector continues to be the long-term care market. “There are only a handful of markets that are currently writing and looking at new business,” said Chester.

Most markets have added pandemic-related or communicable disease exclusions, especially on new business

Hospitality

Client revenues in the hospitality sector have been driven close to zero by Covid-19, which comes against increasing insurance pricing.

Carriers have tightened policy wording to ensure there is no ambiguity of coverage exclusions related to pandemics. Carriers are also asking how properties have been maintained, having sat empty for months.

There is ample casualty capacity but pricing has increased substantially, especially on excess layers. “Carriers are hesitant to offer quotes as they are not sure the insured is going to be able to pay the premium,” said Jack Reid, senior vice president with AmWINS in Los Angeles.

In property, some markets have pulled out of the class entirely. AmWINS reported higher attachments as excess carriers tighten capacity and increase premium, even more than primary carriers, with rate increases ranging from 15 percent to 40 percent.

Communicable disease exclusions are now mandatory with most carriers in this sector. Most carriers are also sublimiting or excluding assault and battery as well as abuse and molestation.

Transportation

In the transportation sector, stay at home orders have significantly reduced accidents while deliveries have been made on time or ahead of schedule.

The biggest challenge facing the sector going forward is economic uncertainty.

In the excess casualty trucking market, rates began to stabilise in the first quarter of 2020, after hardening coming into the pandemic in response to nuclear verdicts. AmWINS said rate increases have became more realistic and predictable at an average of 15 percent on lead $10mn to $15mn layers, compared to the 50+ percent rate increases seen in the fourth quarter of 2019.

Layers above $15mn are still seeing severe rate increases because of a lack of capacity and market availability.

“Insurers are reducing their exposure by offering a fraction of the limit they historically provided, which requires utilizing additional markets to complete or fill a layer that a single market would have offered in the past,” said ,” said Kevin Pollard, executive vice president with AmWINS in Chicago.