Excess Property Insurance Issues and 2013 Renewals

I attended a client’s annual meeting a few weeks back and saw several presentations that were extremely interesting.  However, one particular presentation made me sit back and say, “Wow!”

No, it was not my presentation on the actuarial reserve position of their fund, as exciting as that was. The presentation that really stuck with me was the one presented by the excess property brokers with AON.  Not only did this really illustrate just how global the market place for excess property insurance is but it also reminded me that we have a tendency to remember only those events close to home.

From the global perspective, 2011 was a terrible year for the excess property markets with regard to catastrophe losses.  We remember the four severe weather events in the U.S. and Hurricane Irene.  We remember the earthquake in Japan that set off the tsunami.  However, do you remember the two earthquakes in New Zealand?  How about the major flooding events in Thailand and Australia?  The estimated insured loss from just these 10 events is over $86 billion, and for all losses in 2011 the amount tops $100 billion. The estimated economic loss from all events in 2011 is north of $430 billion, and that estimated economic loss is the highest estimate ever.  The $107 billion in estimated insured loss is second only to 2005, and 5 times above the average.

What does this have to with the 2013 renewals?  Underwriters have a very long memory when it comes to large loss years.  It is common for an insurance company or a fund with heavy property exposures to have the excess coverage split between multiple excess carriers.  In addition, for firms with exposures in heavy property catastrophic exposure areas, the number of layers and companies can rapidly multiple.  Therefore, when you go to renew, you will work with multiple underwriters who all remember how bad 2011 was in terms of losses.  With the early 2012 renewals, everyone was still assessing the damage and totals.  In 2013, they will know the numbers, and the pressure will be on to raise the rates.

The second item that really caught my attention was the new RiskLink Version 11 Natural Catastrophe Model.  If you are in the Southeastern United States, this model really does redefine exposure.  The major change in this model is in the exposure potential for inland areas.  Areas like middle Georgia and Alabama, for example, that the old models considered too far from the coast to have hurricane strength winds, are now included as areas potentially exposed to these strong winds and the damage that comes with them.

At the time of the 2012 renewal policies negotiation, this version was new and not implemented across the board.  For the 2013 renewal, version 11 will be the standard model used in the industry.

There was some good news in that global economic downturn should put some pressure to keep prices from increasing too much.  Nevertheless, if your portfolio includes excess property insurance look out for the changes in the windstorm model results and price increase in your 2013 renewal quotes.

Allen

Allen Fricks, CPCU, ARM. ALCM, is a consultant at Merlinos & Associates.

2 Responses to “Excess Property Insurance Issues and 2013 Renewals”

  1. Andrew says:

    Great article. It will be interesting to see what actually happens and how things shake out. Do you see the end client at all levels being affected? Both smaller property schedules and large?

  2. Merlinos says:

    Thank you for taking the time to read the blog entry and for your questions. To some degree, I see ALL end clients being affected. The RiskLink software is going to produce higher maximum probable loss for all companies with exposures in Southern states. Obviously, the clients with larger property exposures in the most affected areas will see more of the impact but even the smaller insurers will see an increase in the maximum probable loss. The impact will also be based on the number of reinsures and levels of exposure for each. However, I see the possible price increases in reinsurance slowly filtering down to every level including the policyholder.

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