What drives an E&S real estate boom? | Insurance business America
Note: It’s not just the weather…
The non-admitted insurance market is experiencing a boom in property premiums, and states affected by natural disasters, while leading, are by no means the only contributors in a tough market.
Stamp offices across the U.S. reported 2023 growth in surplus line property premiums written of 31.8%, or $5.84 billion, far exceeding the 25.9% increase in 2022. Real estate now accounts for a third of the excess liner business concluded in the 15 reporting states.
Insureds turn to the surplus insurance market when the availability of standard insurance in the market is scarce. Therefore, it should come as no surprise that states affected by natural disasters and struggling with capacity constraints are leading the way in terms of actual premiums added.
“As the risk appetite of the standard market changes, that will always result in certain lines of coverage flowing into the surplus lines market and that’s what we’re seeing here on the property side, particularly when it comes to some of the more difficult lines of insurance. riskier property insurance, particularly cat-risk property,” Brady Kelley, executive director of the Wholesale & Specialty Insurance Association (WSIA), told Insurance Business.
Florida, California and Texas may have been the three states with the highest total premiums, but only Texas led the way in percentage growth in E&S premiums. Coastal North Carolina took first place, while Minnesota came in third. Only New York State saw a decline in real estate premiums written.
|
Condition |
2023 |
2022 |
Ownership as a % of the total premium |
% change compared to 2022 |
|
Florida |
$7,169,426,485 |
$5,058,287,251 |
46.50% |
41.70% |
|
Texas |
$5,778,498,526 |
$3,960,589,972 |
39.60% |
45.90% |
|
California |
$3,795,673,668 |
$3,204,131,429 |
22.80% |
18.50% |
|
new York |
$2,363,238,618 |
$2,366,817,444 |
29.20% |
-0.20% |
|
Illinois |
$1,130,269,723 |
$853,472,855 |
28.30% |
32.40% |
|
Washington |
$746,041,474 |
$585,508,452 |
33.10% |
27.40% |
|
Pennsylvania |
$722,069,738 |
$506,264,253 |
26.10% |
42.60% |
|
North Carolina |
$668,095,653 |
$456,273,607 |
33.40% |
46.40% |
|
Mississippi |
$389,744,329 |
$286,278,761 |
41.10% |
36.10% |
|
Oregon |
$343,175,350 |
$260,922,998 |
33.50% |
31.50% |
|
Minnesota |
$338,609,318 |
$236,648,919 |
27.20% |
43.10% |
|
Arizona |
$274,828,133 |
$210,547,869 |
17.90% |
30.50% |
|
Utah |
$207,531,617 |
$165,266,782 |
24.60% |
25.60% |
|
Nevada |
$142,392,450 |
$111,479,870 |
14.70% |
27.70% |
|
Idaho |
$110,537,555 |
$79,935,091 |
33.00% |
38.30% |
Source: Stamp Office Premium and Transaction Report – Annual Report 2023
In addition to severe weather risks, insurance experts pointed to a confluence of factors driving the upward trend in E&S real estate premiums.
For Bob McNamee, Jimcor vice president of the Commercial Binding Authority, rising reinsurance costs were the primary cause.
“There are several factors, the biggest of which may be that reinsurance costs are increasing, which ultimately leads to higher premiums and rates for the end user,” McNamee said. “That may increase prices significantly, and all indications are that this will stabilize in 2025, but it still has a significant impact on premiums for 2024.”
Reinsurance rates have continued to rise since 2018 following the triple threat of Hurricanes Harvey, Irma and Maria (HIM).
In the wake of the devastating impact of Hurricane Ian, airlines struggled to obtain reinsurance in 2023 amid rate hikes and tightening. U.S. property reinsurance rates increased by as much as 50% for some at renewals on July 1, 2023, according to Gallagher Re. The trend continued through January 1, 2024 for properties previously hit by a disaster, but rates on others reportedly began to level off.
Construction challenges and building ratings have an impact
A rise in building valuations has further fueled the increase in premiums, McNamee and other insurance experts said. Increasing upward pressure, rising construction costs and labor shortages have resulted in some buildings no longer being upgraded and subject to higher property insurance premiums.
Due to severe weather and building damage cost issues, property capacity in both London and domestic markets has shrunk due to increased demand, culminating in price increases.
Approved airlines have introduced stricter insurance requirements and some have moved out of certain regions. This has pushed the real estate business into the surplus lines market.
“Standard carriers continue to withdraw from various classes and introduce more stringent underwriting requirements – such as: “There are different types of cabling and restricted geographical areas – which is driving more business into the E&S cable market,” said Rich Gobler, SVP, Western United States, Burns & Wilcox. “Because of these increased requirements, each carrier is limited to what they write, which creates less capacity.”
Supply and demand dynamics in the E&S sector
Caution over excess real estate capacity and supply and demand dynamics also play a role. E&S carriers have been burned before, causing prices to rise.
“E&S providers are increasing rates significantly due to increased application volume and unprofitable real estate outcomes over the past five-plus years, with high construction costs being a significant factor,” Gobler said.
With many E&S airlines cutting certain classes, Gobler noted that those willing to make a bid “will likely get the fares they want.”
The average line size in the E&S market shrank last year, and more policies are needed to achieve the same “or even lower” limits than in 2022, said Wes Robinson, president of RPS national real estate.
Increased competition could push prices and premiums back down, but that hasn’t happened yet, insurance sources said.
“We didn’t see it [significant entrances into the market] and when you add supply, that will ultimately put downward pressure on the price,” said Doug Davis, SVP of major real estate for Skyward Specialty. “We haven’t seen that, but that doesn’t mean markets that have had a good year, say six [won’t] Say now is a good time to grow. If there are enough markets doing that, then at some point there will be some pressure on the market as a whole.”
Overall, premiums written for surplus lines rose by 14.6% in 2023 after a record year in 2022. Home ownership, homeownership and other personal property saw 7.5% growth. WSIA’s Kelley said this wasn’t “typical” as disaster-prone states like Florida and California pushed premium numbers further higher than last year.
Kelley was pleased to see continued growth in the wholesale and specialty businesses through 2024 and beyond.
“While the complementary nature of our industry certainly results in cyclical ups and downs, our members represent an industry focused on integrity, service, innovation, financial stability and access to markets that can provide tailored solutions to the most complex insurance risks,” Kelley said. “This approach to business will, in my opinion, continue to create opportunities for the wholesale and specialty markets.”
Do you have any idea about the growth of surplus lines? Write a comment below.
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2024-02-14 16:39:12
www.insurancebusinessmag.com
