P&C rates in the U.S. real estate industry expected to soften in 2015: Marsh LLC

Property, casualty and financial and professional liability rates in the United States’ real estate industry are generally expected to soften in 2015, barring unforeseen changes, Marsh LLC said on Monday.

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The finding was from Marsh’s US Insurance Market Report 2015, which found that the U.S. real estate industry experienced relatively stable insurance pricing for most lines of coverage in 2014. Insureds with good loss histories at the end of 2014 typically saw favourable rates, terms and conditions. “Entering 2015, the property insurance market was significantly oversupplied with capacity, including from alternative capital flowing into the reinsurance market from non-traditional sources such as hedge funds, pension funds, and other institutional investors,” said the report, released on Feb. 9.

However, contingent business interruption coverage continues to be a challenge for many organizations, particularly those with large supply chain networks, the report said. Gathering accurate information from second- and third-tier suppliers remains challenging for the insurance industry.

With regards to the casualty insurance market, general liability (GL) insureds will continue to face cyber risk challenges in 2015, stemming from a 2014 decision by the Insurance Services Office (ISO). The office contended that damages related to data breaches and certain data-related liabilities are not intended to be covered under GL policies, and should be addressed through dedicated cyber insurance policies.

The report pointed out that three sectors in particular are facing insurance-related challenges:

• Multi-family dwellings: Poor loss experience in the multifamily dwellings sector has resulted in higher property insurance rates and declining limits. Habitational insureds — particularly related to multi-family frame housing — are typically seeing poorer results than other parts of the real estate industry. Similarly, general liability insurance rates typically increased faster for habitational exposures than for other segments, with few insurers willing to write portfolios with significant habitational components. Some insurers have restricted the writing of new apartment exposures, which is likely to bring further firming in this area in 2015. In addition, organizations within tornado alleys will continue to be challenged at renewal, the report said.

• Real estate investment trusts (REITS): Non-traded real estate investment trusts and mortgage REITs felt financial and professional liability insurance pricing headwinds to start 2015. Further, real estate companies that experienced dramatic changes to their risk profiles generally saw pricing that differs from the average and litigation trends could also affect financial and professional liability insurance rates and terms

• Brownfield transactions: In 2014, carriers demonstrated an appetite for brownfield transactions, the report said. Nonetheless, several of the leading environmental insurers tended to be less supportive of projects with considerable legacy risk. While there continues to be sufficient appetite for 10-year policies, underwriting requirements continue to be comprehensive. This year, the industry could see premium increases, including automatic acquisition rate increases. “Underwriters continue to seek comprehensive information, particularly for brownfields transactions,” the report said. [click image below to enlarge]

Other highlights of the report include:

• Cyber remains one of the fastest growing sectors in the insurance market, as evidenced by continued growth in premium and policy count, as well as the steady influx of new capacity. Continued growth in supply and demand for cyber insurance, coupled with unexpected loss activity, led to significant volatility in pricing during 2014, which is likely to continue in 2015;

• Directors and officers liability insurance capacity entering 2015 was robust, with neither significant new capacity entering nor long-term capacity exiting the global market. Average pricing for public companies decreased in 2014 from the highs seen at the end of 2012; and

• With political risk insurance capacity at record levels, buyers in 2014 experienced generally favourable market conditions, which are expected to continue into 2015.