Northeast Property State of the Market

This is the state of the market for property in the northeastern United States, including trends about rates, capacity, limits, and COVID-19.

2020 was a very different year for property insurance.  The industry weathered COVID-19, the elections, a record number of named storms, wildfires, and more. As we begin 2021,  it's a great time to discuss the state of the market for property. In the coming weeks, we will release more information about the state of the market for all of CRC Group's major lines of business.

Featuring:
Stephen Brennan | Senior Property Broker, CRC New York, NY

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Transcript

State of the Market Property NE

Dan Wentz: Property state of the market for the Northeast. Today, we check in with one of our specialists from the Northeastern United States, from New York to find out what's going on with rates, limits capacity, specifically in property. It's here next on the CRC group podcast. This is the placing you first.

[00:00:18] Podcast. I'm Dan Wentz and his podcast features news and insights from CRCs vast knowledge base of 2000 plus associates who write nexus of $10 billion of freemium annually. And we're giving you insider access to what's happening in our company and the types of insurance we place. This 

[00:00:36] Stephen Brennan: is the placing you first 

[00:00:38] Dan Wentz: podcast.

[00:00:40] We're joined today by Steven Brennan, who is a senior broker from our New York office. And we're talking a little bit about Property coverages in the Northeast and the state of the market what's going on right now on the East coast, Northeast area. So, Steven, thank you very much for joining us today.

[00:00:57] We really appreciate 

[00:00:58] Stephen Brennan: it. Yeah. Thanks so much for having me really appreciate the opportunity to participate in CRCs. Award-winning best of show podcast. I 

[00:01:06] Dan Wentz: like it. You're already trying to score some points there. It's good stuff, but it's it. Hey, if it's fact, I mean, you can't deny it. Right. So, so Steven tell us what's going on.

[00:01:18]What is your view of the current State of the market where you're currently operating there in the Northeast, what's going on with rates, capacity limits, all that good stuff. 

[00:01:28] Stephen Brennan: Well I've been in an insurance business for 17 years 14 years sweat and Crawford, and then subsequently CRC.

[00:01:36]Through that acquisition and I've never seen a market environment like we're currently trading in deal flow volume is up significantly more so than any other year that I, that I've ever I've ever worked in. Part of the reason for that is the rate increases that have be delivered to clients.

[00:01:51]We need to make sure that we're vetting that up as thoroughly as possible. It's not uncommon to have a, you know, a three or four different placement strategies going on in the marketplace at the same time. Trying to develop the, the, the most cost-effective program for, for, for, for our buyers. The increased submission volume into the marketplace is, is given provides underwriters with significant flexibility around their risk selection.

[00:02:15]And in order to make sure that our submissions are getting to the top of the pile and our buyers are getting the attention they need submission, quality and data quality is of utmost importance. Appetites are changing monthly and as carriers attempt to, to, to. Return their books to profitability, as they say generally speaking, I'd like to characterize I'd characterize the current property market as a hardening market with underwriters pushing rate pulling back subtle limits and tightening policy wordings that become very broad over the prolonged soft market.

[00:02:43] Most notably in the non-physical damage know business interruption, extensions. Rates for soft occupancy business, like general real estate office retail are typically we landing in the 10 to 20% up range depending on the deal and how aggressive the program was priced in, in, in years prior more difficult occupancies, such as woodworking and food and, and recycling are still challenged programs to complete sometimes at any price.

[00:03:10] And accounts with loss activity or seeing, you know, 30, 30% plus from a rate lift perspective. But, you know, by and large, for the most accounts, there's ample capacity at some price in the marketplace for insurance to, to be able to purchase limits, they need to sleep at night and to to SU fulfill their, their, their loan covenants.

[00:03:30] The industry in general is reeling from a number of challenges that have taken place over the last three years. The storms of 17 and 18 are really just the beginning. Cat activity in 2020 is at an all time high. We've seen, you know, 30 named storms when, when the industry average per year is between 12 and 13.

[00:03:49] Over 9,000 wildfire events that, that equates to over 4 million acres burned. 2020 is going to end up being the, the, from a wildfire wildfire perspective, the third, most costly wildfire season that, that we've seen on record. We also had a, a small $5 billion plus elder Aho severe convective storm event that ripped through the Midwest.

[00:04:12] That's gotten a little press, but it's also a major candidate. And And these are just the events in the United States, the carriers we trade with our global carriers. They, they, they, their insurance partners or global re-insurance partners and their impact, goodbye losses, all across the world markets.

[00:04:25] Also, still trying to understand the extent of the civil unrest claims that occurred over the last 12 months. That really no one was prepared for. And the attritional water damage losses in the real estate space. Most specifically that, you know, the hospitality space continued amount as buildings you know, there's buildings age over time and has worked with this asset class has always carried a very low AOP deductible building values.

[00:04:48] Being underreported has come into laser-focus as carriers providing blanket, when the policies are seeing in real time through the cat events that reconstruction costs are a time significantly higher than the values being reported, but on statement of values and being used at, for premium generation, for that reason, we're seeing a number of markets Institute, a schedule limit provision in order to participate on risk often called the, the occurrence limit of liability clause to be.

[00:05:13] And the uncertainty around pandemic losses and where that's going to land. Is it still up in the air as these losses are being litigated and it's unclear if re-insurance protection exists for this type of loss and in the backdrop of all of that, the global economy is challenged from a low income.

[00:05:28]Low income and investment income environment, which is forcing carriers into a position in which underwriting profitability is a must to survive. And they can no longer operate at a hundred percent combined, late loss combined ratio, you know, depending on investment rate, uplift to kind of offset some of their underwriting loss.

[00:05:47] Dan Wentz: So you mentioned in there COVID, it's a little too early to, to figure out what that's gonna look like. Right. You're probably seeing the communicable disease stuff, but besides that, 

[00:05:57] Stephen Brennan: So hopefully we're in the final step stretch of COVID-19 here and now the vaccines will surely be available to the general public.

[00:06:04]But from an operational perspective, I think the industry performed pretty well. Most insurance companies and insurance brokerages had some element of remote working already in place prior to the pandemic. So. Other than maybe some bandwidth issues in the beginning, I think I think the industry did pretty well, you know, while face-to-face meetings are always our our, our preferred method of communication the virtual platforms did do a pretty good job of keeping the lines of communication open between insurance, retail, brokers, also brokers, and the ENS underwriter.

[00:06:33] Community, like I said before, there's still a lot of uncertainty around the magnitude of the industry impact here from this event. And as we record this, you know, there there's litigation ongoing. So it's unclear on, on how, where all that's going to land. But like, as you said, the, the obvious impacts of COVID are exclusionary wordings around virus contagious disease, sub limits being moved underwriters, you know, thoroughly reviewing and scrutinizing policy forms relative to non-physical.

[00:06:59]Non-physical damage loss triggers around business income. We've seen a fair amount of insurance companies kind of shying away from certain asset classes that they feel more heavily impacted by COVID. Such as a hotel asset class, it's actually taken a double whammy right there. Their investment income is down coupled with their insurance premiums are going up in that marketplace tightening.

[00:07:20]So some we're seeing certain carriers institutes with some vacancy wordings around you know, warranties, the building owners are maintaining security at buildings that are becoming partially occupied or unoccupied. And, you know, if those warranties aren't fulfilled, then some type of a deductible change could apply or certain parallels may be maybe excluded and I guess the last comment around COVID-19 would be we've seen a number of delayed construction projects due to the COVID shutdown.

[00:07:48] So that's created some hurdles in terms of So during extensions for these projects at times you've had real creative to come up with a solution using both fixed property markets and inland Marine markets in order to provide extensions on projects where maybe the carrier who wrote that project originally two years ago is no longer offering the same terms, conditions, or product.

[00:08:08] You know, 

[00:08:09] Dan Wentz: you, you covered a lot of ground in your first response there, but was there anything we missed in the Northeast that you wanted to talk about specific to to your area? 

[00:08:18] Stephen Brennan: Sure. You know, there really aren't any specific trends that we're seeing in the, in the Northeast. You know, we, we've seen assistant rate lift over the last 18 to 24 months over all geographies and all asset classes.

[00:08:30]You know, carriers are definitely taking a little bit more of a conservative approach to blindsides deployment and large Metro areas such as New York city, when it comes to specifically the retail asset class. Due to some of the strikes, rights and civil commotion losses that they've experienced over the last 12 months.

[00:08:48]But in general, the Northeast is reeling from the same pain as the rest of the country. When it comes to the likes, the standard markets non-renewed accounts that they wrote a hundred percent ground up at some, you know, sub 10 cent rate, which now has to come into the shared and layered space. And in order to complete the limits, they had an expiring, it could take 10, 15 carriers and multiples of the expiring rate.

[00:09:08] To be able to deliver the same limits to the client and renewal. When comment around flood surge that's always been an issue post Sandy. But I don't really see any significant changes there except for the general rate push that you know, the all accounts are experiencing right now, the flood sticker shop for most of those buyers occurred, you know, in 2012 and 2013, when.

[00:09:27] Posts Superstorm Sandy. The mono-line terrorism market in the Northeast seems to be pretty unchanged and stable. I was a lot of capacity there. It's still actually a competitive market. And the only real change that I've seen relative to Northeast businesses, there are certain carriers that are instituting higher percentage name, wind, storm deductibles, and some of the coastal counties.

[00:09:48] New York, New Jersey and new England. I mean, you 

[00:09:51] Dan Wentz: talked about cap property, flood habitation, a little bit better with builders. Is there anything we need to break out there specific 

[00:09:58] Stephen Brennan: to the habitational space? I'll break that down into, you know, the smaller Tibs and then I'm in the larger accounts from a smaller account perspective, there's still plenty of options out there from your traditional risk transfer.

[00:10:09]With an insurance company, as well as some of the shared limit RPG programs that are out there. The rate lifts there is similar to the general market rate lift. Most of the historical companies that were writing the smaller 250 million and below Tibs were had are still right in that class of business today.

[00:10:28]There, there may be some GA geographical pockets that are a little bit more challenging than others. Specifically, you know, North coastal, Texas, and some of the other hail convective storm exposure States are our challenge right now. But by and large is ample capacity of services. This asset class on the larger end, it's a little bit different, a little bit of a different story.

[00:10:47]You know, the habitational space has been a state of correction. Since, since shortly after the 2017 storms, when the likes of London and some of the other standard markets kind of pulled out of of the, of the primary frame apartment space for large accounts today, the capacity there is still a struggle to, to secure at a competitive price with only a select few carriers won't even participate on the primary on a multi billion dollar, you know, frame, frame, apartment complex, a frame apartment schedule deductibles are up for various reasons in the large account space.

[00:11:17]Some to reduce costs, others to improve loss record and in some markets just simply won't even have a conversation, unless you're your AOP deductible, is, is that a hundred thousand or more? The buffer space as respects frame frame apartments is a little bit more challenged now than it was in the past.

[00:11:34]Historically there was ample capacity to find someone to support you know excess of 1 million or extra to two and a half or excess of five and a number of those. Carriers now want to sit excess of a higher attachment point. So the, the, this, the, these short, low buffer spaces is kind of a challenge to a challenge layer to complete.

[00:11:56] And then the other thing relative to that, I would want to mention relative to habitational. And this is both for the smaller and the larger is underwriters are really hyper-focused on valuation. And you know, they're willing to decline a risk if, if. If they'd perceive the valuation is as inadequate 

[00:12:12] Dan Wentz: how's how's flood looking.

[00:12:14] So 

[00:12:14] Stephen Brennan: the flood space is pretty much business as usual capacity for high hazard flood kind of remains the same as it has for the past few years from my desk. I don't see any drastic changes to these programs other than the general market rate lift that everybody's experiencing. But Yeah, th th there's a little bit more capacity, I would say, in the NFP replacement flood space as that's been a hot space over the years.

[00:12:34] And, and there's, you know, mgs kind of dominating this product. Only other comment I'd like to make about the high hazard flood is that there's more opportunities that are flowing to the wholesale market space to compliment the the direct all risk market. As some of them are trimming down their, their, their special flood hazard sub limits and And there's ample capacity in the wholesale space to backfill those, someone has to get the insured to the limits that they needed, uninspiring builder's risk.

[00:12:57] Well, those risks touch upon builder's risk for a second. W you know, our team sees a fair amount of ground up frame projects, as well as renovation deals mostly frame and Joyce had masonry and a fair amount of the Marin or in the Northeast. From what I can tell, there's still ample capacity from the retail direct space for the superior construction.

[00:13:15] Yo non-Cat exposed type builders risk project. But the frame gets pretty tight right now. I count on the number of hand, the number of major quarter share of players that are going to entertain, you know, a large one amount subject frame builders, risk project rates have steadily been rising in that space.

[00:13:30] And, you know, as the demand is high and supply is pretty limited. And, and in order to gain to engage the entire marketplace in shorts really need to demonstrate superior risk management around security site security, whether that's surveillance systems, 24 hour Watchmen, or, you know, lighting and fencing, to be able to engage the entire wholesale the entire marketplace to support these deals.

[00:13:51]Contractors with prior losses are having a difficult time right now. As it takes the entire marketplace to, to put these, to complete these programs and, and having a major fire loss on your records, it really leaves a bad taste, tasted underwriter's mouth. And then, you know, some of the projects have been delayed due to COVID or other reasons and extensions at times can be problematic, you know, as carriers, appetites of changing pretty rapidly right now.

[00:14:14]And some just don't have the reinsurance support to extend. The project term that that's required to finish the project. You know, the others have comment that some have commented that they're seeing an uptick in losses at that very end of the project during that extension term, which was also we've seen carriers Institute, deductible changes and in terms of conditions changes in order to secure that extension, you mentioned manufac.

[00:14:37] Dan Wentz: Yeah. Yeah. Yeah. What's going on with manufacturing right now. 

[00:14:40] Stephen Brennan: We're seeing a significant amount of submission volume in the manufacturing space, hitting the shared and layered world as the retail markets continue to de-risk their portfolios. These accounts are probably the most challenged in the industry right now.

[00:14:53]Many, many times, you know, they were placed a hundred percent with one carrier on a ground up basis. And, and in order to, to mirror the expiring limits, it can take 10 to 30 markets to build the required limits and multiples of, of, of what the insurance been used to paying. We're seeing insurance purchased significantly increased deductibles this year to manage costs as well as purchasing lower loss limits and some buyers we have been willing to to self-insure parts of their program along the insurance companies just to, to mitigate the overall premium spend, you know, number of accounts in the manufacturing space may have been locked up on two or three year rate agreement deals.

[00:15:32]Which those deals are a horror story trying to placement today's market because today's rating environment is nowhere near where they were, you know, three years ago in a while. Capacity for manufacturing in the wholesale market is it's kind of similar to the retail market where, where many, many wholesale underwriters are shying away from more high, high hazard type occupancies.

[00:15:52]So th th the capacity in this space is, is tighter. Now than, than, than it's ever been as the wholesale markets reshape their appetite relative to, to to manufacturing. But it's not all bad, right? It's 

[00:16:05] Dan Wentz: not all bad. 

[00:16:07] Stephen Brennan: And what I read no, we w w we have some new capacity position to enter the market in 2021.

[00:16:13]It looks like, you know, we have at least six new startups in, in the class of 2020 that are racing to to get in the mix as soon as possible. You 2021 as well as the new MGA's, they're trying to build capacity to launch in 2021 as well. Some of these markets have actually started writing business this year and are helping us fill holes on some some pretty challenged, you know, large share, shared layer placements.

[00:16:36]There's definitely more capacity being deployed out of Bermuda. That's providing a pretty good solution and some pretty chunky excess limits on all classes of business. And in many of the Lloyd's syndicates have secured approval to increase their writings in 2021. Most recently I saw on the news Chubb and Munich re are looking to grow in a pretty substantial way next year.

[00:16:55]Now the impact of all this new capital's yet to be seen, but I suspect there'll be welcome as a traditional carriers continued to de-risk. And then we underwrite their portfolios to alleviate their historical legacy issues. 

[00:17:08] Dan Wentz: Yeah. So things are changing quickly, right? I mean, that's, that's basically what's going on.

[00:17:13] You do this podcast and another month or two, it's going to sound completely different. It's it? Isn't it seriously? Maybe not completely, but it'll be different. So that's great 

[00:17:24] Stephen Brennan: in this changing marketplace, right? Having a wholesale partner that's covering all basis, your traditional capacity, your London Bermuda Asia re-insurance is absolutely critical.

[00:17:35] And CRC has proprietary ready system ensures that, you know, our brokers not leaving any stone unturned ready software now already ingrained into our brokers workflow helps every CRC broker to thoroughly canvas the market. Yeah, providing each brokerage team with real-time data as respects to what carrier is writing, what class of business and how to access that carrier ready, leverages the data across the entire CRC book of business in real time.

[00:18:00] So a CRC broker anywhere in the United States has up to the minute market Intel from geographies all across the U S right at his fingertips, his or her fingertips. In addition to our proprietary market intelligence ready platform, partnering with CRC provides retail brokers with exclusive access to CRCs proprietary suite of insurance products from property perspective, ensure risk Their underwriting capabilities are helping our retail brokers play some of the smaller ground up cat driven placements, as well as filling holes on some pretty large, you know, shared and layered challenge placements.

[00:18:34] And in addition to two, ready and show risk, our team of cat modeling experts are helping our clients and our brokers internally better understand our buyers through the use of of our air and RMS vendor platforms. These vendor modeling reports help our brokers identify the, you know, the key sensitive cat data modeling points to better structure and shape a custom custom built insurance program for our customers.

[00:19:00]And while the, while the market environment is challenging I believe that the technology and resources and the expertise and, and hustle that CRC brokers deliver to our clients on a daily basis. Generate the absolute best result market will bear. And I look forward to to the challenges ahead in 2021.

[00:19:15] Dan Wentz: Yeah. Steven, you missed the most important resource, which is you and the brokers like you across the country. I mean without you guys, nothing would get done, but we do have all that technology to support you guys, which is great. I mean, I know I'm impressed, man, that you sound you've just got it figured out right now.

[00:19:33] So yeah. That's awesome. Thank you very much for joining us on the podcast today. And of course, if you're in the New York area, you want to work with Steven, it's pretty simple to hook up with him. You can just visit our website, CRC group.com and search out Stephen Brennan, New York office. And of course, we've got brokers all across the country who are sharing information.

[00:19:52]You know, just like Steven. So if you're listening for another part of the world and you want to find a broker, you want to look someone up that website is a great resource to do that. Steven man. Great update. Thank you very much for sharing your thoughts on the the property market there in the Northeast.

[00:20:07] Stephen Brennan: I appreciate it. Thanks so much, Dan.