E&S property’s market struggles
IN Partnership with
Andy Hendrix, executive vice president, E&S property, Westfield Specialty Insurance, says that a global capacity shortage is the leading issue for the property insurance market amid sustained, increasing losses
More
PROPERTY INSURANCE underwriters should put wishful thinking aside: more frequent and destructive catastrophic weather events are here to stay.
“Everybody just assumes that ‘Hey, we’re due for a light cat year.’ And we've been saying that for five or six years,” says Andy Hendrix, executive vice president, E&S property, at Westfield Specialty. “We must prepare ourselves that there will be moderate to heavy cat activity every year. That is how Westfield Specialty thinks about it in terms of underwriting and pricing property risks.”
“And if a lighter cat year does come along,” Hendrix adds, “even without major events in 2023, we will not snap back to market conditions from three, four, five years ago, although capacity will be more stable.”
Be ready for what is coming, he urges. “We build portfolios with the idea in mind that there will be a major category 4 or 5 hurricane that hits the US every single year. These books must be priced accordingly and underpinned with exposure management fundamentals to maintain profitability even after experiencing sizable events,” Hendrix says.
Westfield was founded in 1848 by a small group of hard-working farmers who believed in the promise of the future and the power of the individual. Today, 175 years later, as a leading US-based property and casualty insurance company with $8.5 billion in GAAP assets, Westfield underwrites commercial, personal, surety, and specialty lines of coverage through a network of over 1,000 leading independent agents and brokers. Westfield recently acquired Lloyd’s of London Syndicate 1200, establishing the company as a global franchise. Learn more about Westfield Specialty at https://www.westfieldinsurance.com/insurance/specialty.
Find out more
The primary challenge currently facing the property market?
Capacity.
“Programs are having a difficult time getting filled now. It is a global shortage of capacity – not just at Lloyd’s, US carriers, or in Bermuda. It’s everywhere,” Hendrix says.
While price remains important, “the first and foremost goal for everybody right now is to get programs filled. Just filling a program 100 percent is the hardest part.”
Moreover, Hendrix says that there will be no “huge influx” of capital or capacity entering the market. “We don’t see a saving grace.”
Because the market is undergoing a significant reset, it requires a fundamental underwriting change for property lines to be “a viable, sustainable market over time,” Hendrix says.
To explain, he points to the property markets after 9/11 or Hurricane Andrew in 1992. “Those, by and large, were single events that shaped the global catastrophe market,” in their respective years, he says.
In contrast, “2023 was going to be a challenge for everybody, even before [Hurricane] Ian. Inflation, rising interest rates, climate change fears, year over year of poor
Property underwriting is labor-intensive, with elevating costs. “We have teams of underwriters and teams of exposure management analysts,” says Hendrix, in every property portfolio. “There is significant resource and capital tied up in these businesses. Executives and CEOs need to see results.”
Unfortunately, Hendrix observes, pricing in the market is currently “bumping at the ceiling of how high it can go. It can’t go much higher because they [customers] are not going to buy.”
Customers who can afford to are self-insuring instead. “When you see that type of behavior from insurance buyers, you have to ask yourself, ‘Is this the breaking point where they don’t buy, or if they do buy and carrier profitability is still in question – what is going to give, what will change?’”
“We are not asking for huge margins. This is purely about generating sustainable profit on a combined basis to justify the capital we put in.”
Still, tough decisions await underwriters, brokers, and their clients.
To brokers and agents, Hendrix says, “The carriers and reinsurers who have made it through are comfortable with the pricing, comfortable with the terms and conditions, and you will see a stabilization around current market terms.”
Of clients, Hendrix asks, “Are you looking at retention? Are you doing things to harden your buildings? Are there nice-to-have but not mandatory coverages or sublimits you can live without? Underwriters understand and can evaluate your key exposures; however, these ancillary coverages, which are difficult to evaluate, tend to give us pause.”
“This is not fun for underwriters, carriers, capital providers. Given increased reinsurance costs, carrier potential margin is not expanding just due to the current environment. The challenge for everyone has been the degree to which the market has changed in a relatively short time. The shock of it is what causes the angst,” Hendrix adds.
Share
Share
A needed change in underwriting
Published 01 May 2023
Contact Us
Specialty
Best in Insurance
Resources
Risk Management
TV
News
Copyright © 2023 KM Business Information US, Inc
RSS
Sitemap
Contact us
About us
Conditions of Use
Privacy policy
Terms & conditions
People
Contact Us
Specialty
Best in Insurance
Resources
Risk Management
TV
News
Copyright © 2023 KM Business Information US, Inc
RSS
Sitemap
Contact us
About us
Conditions of Use
Privacy policy
Terms & conditions
People
Contact Us
Specialty
Best in Insurance
Resources
Risk Management
TV
News
Copyright © 2023 KM Business Information US, Inc
RSS
Sitemap
Contact us
About us
Conditions of Use
Privacy policy
Terms & conditions
People
While price remains important, “the first and foremost goal for everybody right now is to get programs filled. Just filling a program 100% is the hardest part”
Andy Hendrix,
Westfield Specialty
Trying to fill programs
underwriting results – then, on top of it, the second-costliest natural catastrophe in US history occurs in Ian. CEOs, shareholders, and investors are extremely exhausted with property results over recent years. And a lot of questions are being asked as to whether we should even be writing this business.”
“Even without major events in 2023 we will not snap back to market conditions from three, four, five years ago, although capacity will be more stable”
Andy Hendrix,
Westfield Specialty
Can capital outlay be justified?
Hendrix says he is sympathetic to clients who had good loss records but were seeing their insurance premiums spike.
“Stick with us,” he urges clients. “Even though you have not had losses, you are part of a global insurance ecosystem that is under stress. It is nothing against any insured individually. And understand that there will be some consistency coming back to the market eventually.”
Weathering the storm
Hurricane KATRINA, 2005:
$98,727,000
(estimated insured property loss; all numbers in 2022 dollars)
Hurricane IAN, 2022:
$52,553,000
Hurricane IDA, 2021:
$39,256,000
Hurricane SANDY, 2012:
$38,688,000
Hurricane HARVEY, 2017:
$36,450,000
Hurricane IRMA, 2017:
$35,714,000
Hurricane MARIA, 2017:
$35,654,000
Hurricane ANDREW, 1992:
$33,875,000
Northridge Earthquake, 1994:
$31,218,000
Hurricane IKE, 2008:
$24,815,000
Source: Insurance Information Institute
www.iii.org/fact-statistic/facts-statistics-us-catastrophes
10 costliest US natural catastrophes
2013: $31 billion
(for US natural catastrophes, in 2022 dollars)
2014: $29.2 billion
2015: $28.8 billion
2016: $39.3 billion
2017: $158.7 billion
2018: $71.6 billion
2019: $45.2 billion
2020: $93.3 billion
2021: $102.7 billion
2022: $99.9 billion
Source: Insurance Information Institute
www.iii.org/fact-statistic/facts-statistics-us-catastrophes
Estimated insured property losses