property & casualty updateus market update …p&c maret update locton us 3 december 2016...

Property & Casualty Update—US

L O C K T O N C O M P A N I E S

Market Update December 2016

THE ADVANTAGE STAYS WITH THE BUYEROngoing price competition fuels favorable market conditions.

Dramatic shifts in the commercial insurance landscape have created brisk competition, ample capacity, and lower prices during the past several years. Today, it remains a buyer’s market.

The sustained soft market has prompted certain organizations to complete major restructuring or management consolidation in an attempt to become leaner and more focused. Meanwhile, other markets are leveraging or geographically expanding their existing platforms. This is all in addition to continued mergers and acquisitions.

“Overall, the competitive landscape persists, as markets struggle to find growth while protecting their existing books of business,” said Tim DeSett, Risk Practice Leader for Lockton.

In the current “big data” environment, carriers continue to invest in analytics, hoping to leverage data to write more profitable business and enhance their value to clients. Other carriers are using data to pressure distribution to be more cost-efficient and minimize barriers between the economic buyer and source of capital.

The net effects of these trends and activities are sustained improvements in premiums, terms and conditions, and options for buyers.

Property page 2

Casualty page 4

Workers’ Compensation page 6

Terrorism page 8

Financial Services page 10

Cyber page 12

Surety page 13

Construction page 14

Real Estate page 15

Healthcare page 16

Environmental page 18

Regional Focus page 19

US Property & Casualty Industry at a Glance page 20

P&C MARKET UPDATE | LOCKTON US

2 December 2016

Property

The property market remains soft, with clients experiencing significant price improvement driven by innovative and disruptive broking philosophies. With the exception of Hurricane Matthew, 2016 has been a benign storm season.

RMS’s latest report estimates insured losses from Matthew between $1.5 billion and $5 billion. These figures rank Matthew as the costliest US hurricane since Superstorm Sandy in 2012, yet rates are unlikely to harden due to ample capacity and the absence of a second significant event during the storm season.

New entrants in difference in conditions (DIC) insurance continue applying downward pressure to California earthquake pricing. Due to the immense amount of capacity available in the marketplace, coupled with the lack of any meaningful earthquake activity in the past 20 years, buyers are benefiting from increasing underwriter appetites. Results include:

� Rate reductions.

� Lower deductibles of 2–3 percent versus 5 percent.

� Carriers willing to offer multiyear deals.

Complex programs that necessitate an abundance of capacity and multiple market participation, commonly known as “shared and layered,” continue to benefit.

“Plenty of carriers willingly offer terms on these programs, which has afforded companies excellent negotiation leverage in the areas of terms, pricing, and retention enhancement,” said Kyle Sliwerski from Lockton’s Property Practice.


3 December 2016

Going beyond traditional property coverage, virtually all property renewal strategy discussions emphasize first-party cyber, privatization of flood cover, and setting appropriate flood limits, as well as product innovation such as parametric trigger programs. These programs do not indemnify pure loss but instead make payment after a triggering event. For example, if a named windstorm breaches a certain wind speed threshold or an earthquake measures a certain level on the Richter scale, a payment is triggered regardless of damage.

There is also an expansion and broadening of crisis management efforts, prompted by the unprecedented level of violence occurring in areas of the world once presumed safe.

AVERAGE PROPERTY RATE CHANGE & MAJOR NATURAL CATS (2011–2016 FIRST HALF)

2.25%

6.24% 4.56%

-1.60%

-4.50%-5.61%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2011 2012 2013 2014 2015 2016 First Half

HURRICANE SANDY

$19B$7.5BSOUTHEAST US

WINDS & FLOODS

Sources: Insurance Information Institute, Property Claim Services, The Council of Insurance Agents & Brokers, Barclays Research, and Advisen

Major Natural CATs

Average Property Rate Change


4 December 2016

Casualty

Rates continue to trend downward across most casualty coverage lines. This declining rate environment has put pressure on combined ratios and a premium on top-line growth, creating a competitive dynamic. There are some exceptions where the marketplace deviates for certain industry segments and lines of coverage.

Specifically for trucking and other fleet-heavy risks, risk quality remains paramount, as the commercial auto sector has been plagued by deteriorating loss experience. In these cases, capacity is carefully deployed, with increased deductibles and higher attachment points for the lead umbrella. The marketplace has addressed the void presented by significant carrier departures in this space, and the net impact from all of these shifts has not been dramatic beyond that segment.

Market pricing also remains bifurcated for renewals and new business. An incumbent market with a price to defend is typically reluctant to reduce pricing as much as a new carrier trying to win the business. For loss-sensitive clients, the flip side of this is that legacy collateral often provides the incumbent carrier a competitive advantage in retaining clients.

RATE CHANGES BY COVERAGE LINE (2015 Q2–2016 Q2)

0.5%

1.3%

2.7%

3.6%

2.4%

-1.9%

-2.5%

-3.0% -3.0%

-4.3%

-3.0%

-2.7%

-3.2% -3.2%-3.6%

-2.7%-3.0%

-2.5% -2.5%-2.2%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2

Commercial Auto Workers' Compensation General Liability Umbrella

Sources: The Council of Insurance Agents & Brokers and Barclays Research


5 December 2016

Commercial Auto

Historic Losses Drive Up Commercial Auto Insurance Costs

Jury verdicts and pretrial settlements are hitting values higher than the industry has seen before, which means carriers are seeing more costly auto losses, more frequently. This is affecting their pricing models, and the trend is likely to continue.

Several major carriers have tightened their underwriting guidelines or exited the commercial auto market altogether, shrinking capacity for trucking risks in particular. The markets that are still in this space are overloaded with submissions.

As a result of the increasingly large losses in the commercial auto industry with truckers, the markets that are willing to write lead umbrellas in this space seek a $10 million minimum attachment point.

Given that these market conditions are likely to mean higher premiums and potential structural changes, brokers are preparing for renewal well in advance. Insureds can help secure more favorable rates by playing an active role in the marketing process.

Foreign Casualty

More Major Insurers Are Going Global

For global companies looking to transfer risks such as premises and product liability, employer’s liability, and foreign voluntary workers’ compensation, the market continues to favor the buyer. Soft market conditions persist for foreign casualty as a result of generally favorable loss ratios and increased competition.

Traditionally, several large insurers have captured the majority of multinational clients looking to insure their operations around the world. These insurers generally have dedicated international underwriters with expertise and knowledge about global companies, as well as established networks of offices around the world. These networks allow insurers to issue locally admitted policies and adjust and pay claims in-country for the majority of the insureds’ operations.

In the past year, several other major insurers have either entered the foreign casualty space for the first time or announced new products or initiatives aimed at capturing more global business.

When evaluating some of these insurers’ offerings, companies are encouraged to consider not only rates and pricing but also the insurers’ ability to:

� Issue policies around the world in a timely fashion.

� Adjust and pay claims in-country.

� Defend their insureds in local jurisdictions.

� Deliver services such as travel assistance and evacuation.

Going forward, strong competition will continue in global casualty, resulting in rate reductions and a soft market. While the existing players writing global accounts will continue to innovate and try to expand their relationships with global companies, they will face stiff competition from newer entrants looking to make an impression.

“During the next several years, carriers new to foreign casualty will be challenged to demonstrate their ability to deliver consistent pricing alongside the more established global insurers,” said Logan Payne, Global Client Services Team.


6 December 2016

Workers’ Compensation

Workers’ Compensation Premiums Fall as Losses Drop

Workers’ compensation (WC), once the line of coverage that led the market with underwriting losses, continues to show great improvement. During the past few years, safer machinery, more advanced medical treatments, and more safety-conscious employers have reduced WC losses. The improvement in underwriting performance has resulted in competitive pricing and lower premiums.

However, the cost of prescription drugs remains a key cost driver, with opiate abuse a significant area of concern. Employers, carriers, and third-party administrators (TPAs) are tightening these costs by using only in-network providers and pharmacies, requiring prior approval of opiates and compounded drugs, and monitoring and auditing their pharmacy networks.

“Rates are generally flat to down several percentage points, based on the insured’s industry, loss history, and attachment point,” said Vince Gaffigan, Director of Risk Consulting, St. Louis. “While rates should remain competitive through 2017, the long-term outlook for this line of coverage remains under pressure due to rising healthcare costs, an aging population, obesity, and prescription drug abuse.”

Opting Out of WC?

Currently, only Texas allows employers to opt out of traditional workers’ compensation programs since Oklahoma’s Supreme Court ruled to strike down the Oklahoma Option to WC, while other states continue to assess statutory changes to their systems.

Within the state of Texas, clients have seen reduced costs as a result of their decision to opt out of the WC system. However, there are also potential costs, including higher administrative costs and the loss of the exclusive remedy protection under traditional workers’ compensation programs.

The umbrella and excess casualty marketplace does not support follow form coverage above a company’s nonsubscription policy, so it is important to examine what coverage is (and is not) afforded by the excess casualty program and purchase underlying limits accordingly.


7 December 2016

Managed Care Fees

Pressure on premium rates has led many carriers to become more creative in collecting additional fees for managed care, medical bill review, and pharmacy utilization. Third-party administrators have further compounded the issue by adding fees for previously “standard” services.

For large employers, these fees often lack transparency and can negate premium concessions gained through competitive marketing. The fees are typically treated as allocated loss expenses and thus increase the ultimate loss projection. If they are higher than they should be, such expenses can have an adverse impact on a client’s reserve accruals and collateral calculation. It can also drive higher excess pricing, as most underwriters set a significant portion of their excess insurance costs as a function of the primary loss pick. If the primary is inflated, the excess will follow suit. It is essential then for brokers and clients to fully evaluate the overall impact of managed care fees and their potential influence on premium, losses, and collateral.

Mergers and Acquisitions (M&A)

Given the continued influx of private equity capital and the formation of unconventional joint ventures, M&A activity remains robust. The effects of this activity on workers’ compensation can often be overlooked and lead to adverse changes in development patterns, insurance costs, and collateral.

“Beyond just providing the workers’ compensation loss history, companies should carefully reexamine historical loss patterns, remaining alert to what might

be relevant to pricing or accruals. For example, did the acquired company have a TPA with different reserving practices? Did the transaction lead to certain operations being combined or eliminated? Will new technology eliminate or reduce claim frequency?” Gaffigan said. Companies should also be prepared to discuss how existing safety and claim practices will be integrated into the new entities.

Smart Technology

The rise of wearable technology has led to new initiatives around monitoring employee behavior, flagging dangerous activity, and improving fitness and health. Improved video capabilities and bandwidth have given rise to rapid advancements in telemedicine, allowing workers to “see a doctor” from home.

Improved integration of systems has also allowed carriers and employers to more effectively mine their data to look for adverse trends and improve WC outcomes.

Legalized Marijuana

While still limited to a handful of states, the rise of recreational and medical marijuana raises a number of issues related to compensability, pre-/postloss drug testing, and payment for a drug which is still effectively illegal under federal law. The recent election results further complicate this as a Republican Justice Department has promised a new emphasis on “law and order” issues. Risk managers should work closely with counsel to reevaluate employment and safety and drug-testing practices to ensure they continue to comply with evolving case law.


8 December 2016

Terrorism

Stand-Alone Terrorism Insurance Fills the 9/11 Gap

Terrorist attacks in major cities, including Orlando, Nice, Paris, Dallas, and London, have established a new level of awareness and apprehension. Many property insurance policies include coverage for “malicious mischief,” but after 9/11, most policies began excluding or severely limiting terrorism coverage.

Companies must prepare for potential attacks.

“Terrorism poses a major threat, and often overlooked is the impact these strikes have on businesses tasked with rebuilding their operations and reopening their doors as quickly as possible,” said David Briscoe, Lockton London.

The stand-alone terrorism market has spent the past 15 years recapitalizing, enhancing its capabilities, and increasing the limits it can offer. New insurers continue to enter the space, providing competitive capacity to drive down pricing. There are many reasons to consider stand-alone terrorism coverage:

� Coverage is not reliant upon the federal government certifying an event.

� Contract certainty, as this is a claim-tested product with prompt loss payouts.

� Coverage can extend internationally.

� Coverage can be tailored to the terms desired by the policyholder, such as contingent time element, or dictated by a contractual agreement that can be underwritten into the policy.

� Allows for coverage to apply to only specific locations carved out of the property schedule, as needed.

� Clear policy coverage for both sabotage and terrorism, including civil authority damage.

� Pricing reflects the actual exposure rather than a percentage of the policy premium to which the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is attaching.

� Lower deductibles are often available, especially for larger organizations accustomed to taking six- or seven-digit retentions.


9 December 2016

In September 2016, Lockton and London market insurers introduced Terrorism Crisis Solutions (TCS) to offer corporations terrorism cover that encompasses a wide range of threats, including sabotage and terrorism for both property damage and liability; financial protection when a client is impacted by an insured event; threat of a malicious act; nuclear, chemical, biological, and radiological malicious acts; active assailant, active shooter, workplace violence, and stalking threat; and riots, strikes, and civil commotion.

Terrorism Crisis Solutions

The threat of a malicious act

Sabotage and terrorism combined

liability (GL/EL)

Sabotage and terrorism

Active shooter

Client Exposure

Loss of attraction

Active assailant

Riots, strikes, and civil commotion cover (worldwide, excluding the UK

and US)

Workplace violence and stalking threat

Nuclear, chemical, biological, and

radiological malicious acts (NCBR)


10 December 2016

Financial Services

D&O Liability Insurance Policies Evolving

Directors and officers (D&O) market pricing is generally flat due to an abundance of capacity and a relatively favorable loss environment. Firms in certain industries, such as life sciences and financial institutions, will still face significant underwriter scrutiny.

D&O policy terms and conditions continue to evolve, with some carriers providing products for heightened

regulatory exposures. Responding to an informal SEC investigation continues to be a coverage challenge.

“These investigations often commence without naming individuals or alleging a wrongful act, both hurdles that can preclude coverage in a typical public company D&O policy,” said Jason Jones, a financial lines expert in Lockton’s Washington, DC, operation.

To address this concern, many carriers now have the ability to offer “entity investigation coverage,” which is priced separately and often subject to a higher retention. Explicit coverage for books and records investigation costs is also available from some carriers. Similar to the informal SEC investigation costs, these books and records demands often do not meet the definition of a securities claim to trigger coverage under a base D&O policy. Many carriers have developed an explicit endorsement covering these costs and tying them into the derivative demand costs sublimit.

It has become fairly common for excess carriers to offer “drop down” excess derivative demand costs. This trend involves excess carriers attaching at the derivative demand sublimit in the primary policy to provide excess coverage. This strays from previous market conditions, where excess carriers would typically not drop down and attach at this sublimit. This shift in the market ultimately enables D&O programs to build higher derivative demand costs coverage than before. Exceptions exist if there is minimal premium in the excess layer to support offering the coverage.

Financial Advisors Face Unique Issues

Retirement Plan Fee Allegations Lead to New Rules

Retirement plan service providers face increasing scrutiny and litigation as plaintiffs allege a breach of fiduciary duty based on payment of excessive service fees. Allegations against retirement plans typically include failure to monitor and control fees paid for recordkeeping and administration, failure to negotiate lower fees for mutual fund investment options, and conflicts of interest based on the relationship between the employer and service providers.


11 December 2016

The Department of Labor’s new rules regarding who qualifies as a fiduciary under ERISA will further embolden aggressive plaintiffs’ lawyers. Those new rules make a broader class of investment advisors subject to a more stringent fiduciary standard.

“Fiduciary liability coverage is not typically a focus for many companies, as claims are uncommon. However, this trend indicates a need for companies to review their fiduciary liability coverage, as well as their retirement plan practices, to proactively manage this risk,” Jones said.

ADA Website Accessibility Claims Prompt EPL Policy Reviews

The past several months have brought a surge in claims concerning accessibility to websites for disabled persons. These claims potentially belong under third-party employment practices liability (EPL) coverage, which generally covers harassment and discrimination against third parties (nonemployees) such as clients, vendors, and other business contacts. However, each policy addresses this point a bit differently, and the cost to make a website accessible is not covered.

These claims are unlikely to stop anytime soon since regulators do not plan to issue clear website guidance under the ADA for at least another three years.

“For now, companies would be wise to review their websites with their attorneys to identify potential issues. They should also review their EPL policies to ensure they have proper third-party liability coverage,” Jones suggested.

Social Engineering Fraud Puts Employees At Risk

Social engineering fraud occurs when a criminal poses as a client, vendor, or senior-level employee and uses email or a telephone to induce another employee to transfer funds. Most domestic carriers offer express coverage for this exposure, although it is usually sublimited to $250,000 or less.

This market is evolving rapidly. Certain carriers in London and Bermuda will consider full limits, typically subject to additional premium and scrutiny around wiring controls. Other carriers are looking toward new policy wording with more of an all-perils approach, which would provide full limits for social engineering claims.

Companies should determine what sublimits their domestic carriers can offer or, if the exposure is great enough, explore stand-alone social engineering policies through the London or Bermuda markets.


12 December 2016

Cyber

Two October Cyber Attacks Rattle Industry

On October 21, 2016, a domain name system (DNS) provider called Dyn came under attack. Dyn gives end users the ability to map an Internet domain name to its corresponding IP address. The attack involved tens of millions of DNS lookup requests from a large number of IP addresses, and it affected services from Amazon, Airbnb, Twitter, Spotify, and others.

The activities are believed to involve a botnet coordinated through a large number of malware-infected devices connected to the Internet, such as printers, cameras, and baby monitors. A hacktivist group called New World Hackers subsequently claimed responsibility for the attack in retaliation for Ecuador’s rescinding of Internet access to WikiLeaks founder Julian Assange at their embassy in London, where he has been granted asylum.

Long focused on addressing enterprise liability from handling personal data, insurers have started to incur costs such as extortion payments from ransomware attacks, loss of funds from spoofing, and income loss from network interruption. Although the frequency of these types of attacks is growing, the size of these losses is not yet significant enough to impact premium paid.

The use of connected physical devices to attack Dyn is also a reminder of additional loss consequences that, although unlikely, are now feasible. Property damage, bodily injury, and product liability, among other risks, are prompting insurers to identify and manage cyber risks across all of the property and casualty products they offer.

“As of today, it remains unclear whether the market will seek to underwrite and price cyber within these existing products or exclude it and gravitate toward an ‘all risks’ stand-alone solution,” Beeson said.

“For the insurance industry, the attack on Dyn was significant for two reasons,” explained Ben Beeson, Cyber Risk Practice Leader. “First, very few underwriters had foreseen a DNS service provider as the source of risk aggregation that could trigger cascading losses across their account portfolios. Second, this was more evidence of the increasing frequency of attacks leading to first-party consequences.”


13 December 2016

Surety

Improving Economy Increases Surety Competition

As the economy grows, so do the construction and surety industry markets. Despite this trend, downward pricing pressure has kept premium growth modest in the surety sector.

“New market entrants, geographic expansion, and soft reinsurance pricing have continued to fuel strong competition within the surety market,” explained Evan Sizemore, Senior Surety Analyst, Kansas City.

With publicly funded projects falling below historical levels, privately funded projects continue to drive the growing construction industry volume, which customarily don’t require bonds.

The commercial surety market remains ultracompetitive with the continuation of soft pricing for the past two to three years. The rebound of oil prices has limited concerns in this space.

Decreased pricing and competition have left significant capacity available across the surety market, providing a great opportunity for surety program improvements for clients with strong credit profiles and growing operations.

As competition intensifies, pricing has dropped to concerning levels within the commercial surety market. Several small and middle-market contract surety markets have relaxed underwriting standards on personal indemnity and financial presentation requirements in an effort to acquire business.

The industry continues to closely monitor the growing shortage of skilled labor in the subcontractor ranks, as the quantity of claims over workmanship has begun to rise. The possibility of overextension—both financially and operationally—continues to be the main concern in the market.


14 December 2016

Construction

Pending Subcontractor Losses Raise Red Flag

Since the construction industry entered the recession more than five years ago, concerns over subcontractor failures have lingered. A subcontractor’s late position in the payment cycle and high labor costs make it especially vulnerable during a downturn.

These expected failures, for the most part, have not materialized. The considerably slower economic rebound, as compared to prior recessionary periods, has helped curb the potential widespread failures.

Despite the lack of losses, many general contractors have taken a stronger approach to subcontractor qualification and risk management to combat the continued fear of subcontractor defaults. Industry growth brings concerns of labor shortages and overextension of resources—the primary driver of defaults during past upswings in the construction industry.

Overextension can be especially dangerous as these companies don’t show the normal signs of distress, yet a single delayed receivable can cause the house of cards to come tumbling down.

“The concern for subcontractor losses continues to dominate many market discussions—primarily due to the risk of overextension, which can mean a lack of capital and cash flow to support the growth in work, as well as the challenge of securing labor that does high-quality work and keeps the schedule on track,” explained Patrick Pribyl, Leader of Surety Operations for Lockton’s Kansas City operation.


15 December 2016

Real Estate

Hurricane Matthew Didn’t Measure Up, So Real Estate Rates Stay Down

A soft property rate environment continues to deliver decreases in the range of 5 to 15 percent, based on asset quality, program structure, and—most important—loss experience. While some markets have tried to slow the decreases, new entrants and a continued increase in capacity are putting downward pressure on rates.

As is the case in the general property market, multiyear deals and parametric triggers are becoming more prevalent. On the general liability side, the market is not as soft, especially for multifamily clients.

General liability guaranteed-cost options are harder to find, and companies are moving up their retentions to maintain or lower premium costs. Most carriers have a minimum retention of $25,000 for multifamily risks.

“Carriers in the multifamily space are taking a harder look at certain underwriting criteria, such as the amount of subsidized housing and/or student housing, as well as crime statistics,” said Peter Romano, Real Estate expert in Lockton’s Denver office.


16 December 2016

Healthcare

Healthcare on High Alert

Capacity continues to flood the healthcare professional liability market, both from long-term carriers and those new to the space. This abundance of capacity allows for a continued depression of overall rates.

A few key industry issues to watch during the next six months include tort reform, increases in jumbo verdicts, and the impact of credentialing (or failure thereof) on healthcare professional liability. With the focus on the potential for overturning tort reform in various jurisdictions, we can expect to see a fluctuation in cases with large verdicts. This may, in time, drive up professional liability premiums.

Within a two-week span, two verdicts in excess of $10 million hit the news—both involving obstetrics. The market will continue to monitor these verdicts for size, scope, and the applicability of punitive damages. Credentialing claims, outside the managed care space, have been generating significant damages across the country. The Bermuda market has added credentialing to the watch list, and we will likely see this drive change in terms and pricing over time.

Regulatory actions within the healthcare industry are a growing concern, with the potential increased Department of Justice focus and continued whistle-blower actions. Healthcare organizations are striving to improve internal compliance, which includes dedicating full-time resources to responding to audits and generating mock audits.


17 December 2016

As of the end of October 2016, the Office of Civil Rights has created one more area of attack for audits and potential fines and penalties with respect to business associates.

“Organizations are still gaining understanding of this additional type of audit and the impact of lack of appropriate documentation. With the changes, organizations are increasingly looking at risk transfer programs for regulatory actions,” Gaffigan said.

The evolution and abundance of social media continues to impact controls on privacy management and reputation/brand management within healthcare organizations. While there are risk transfer solutions for the breach of privacy that may come from improper use of social media, the long-term effects of brand damage create a deeper concern.

“Wearable technology poses a new risk to healthcare organizations—enhancing the crossover of medical liability, technology errors and omissions, and cyber/privacy liability,” Gaffigan said. As this risk continues to emerge, organizations face the need to develop risk mitigation techniques and insurers are confronted with new crossover claim scenarios.


18 December 2016

Environmental

Following AIG’s exit from the North American pollution legal liability (PLL) marketplace earlier this year, there was tremendous uncertainty about how the marketplace would respond. Fortunately, fears of a hard market went unrealized, pricing has remained stable, and rates are flat to 5 percent lower across the board on renewals with a favorable loss history.

Capacity has diminished, as AIG’s departure took $50 million out of the marketplace, but more than $300 million remains available. Policy terms are shrinking overall, with fewer carriers offering five- to ten-year terms on transactional placements. As claims experience increases for carriers, underwriters are becoming more selective in how they structure coverage on complex risks. Several new carriers have emerged that share similar underwriting philosophies, product offerings, and appetites as some of their established competitors.

Contractor’s pollution liability and combined general liability and pollution products have also remained stable. Flat to reduced renewal rates are the norm on favorable classes of risk with solid claims performance.

Bedbugs Create Buzz in Environmental Insurance

Few new coverages have emerged in the environmental sector, but carriers are offering several elements more frequently or on a broader basis. One example is bedbugs coverage on multifamily, habitational, and hotel/hospitality risks.

While bedbugs coverage has made a big splash within these industries, it is still quite limited. Most carriers offer coverage for remediation/cleanup only. Business interruption expenses are widely excluded, and heavy sublimits—typically under $100,000—apply.

“Given these restrictions, we would caution clients against allowing bedbugs coverage to be the deciding factor when choosing a carrier,” said Katrina Hagen, Environmental Risk Specialist, Denver. In addition to bedbugs, the following elements that were once enhancements are becoming standard on Lockton policies:

� Defense outside the limits.

� Pollution condition to include decontamination of bacteria/viruses.

� Occurrence-based transportation coverage.

� First-party diminution in value.

� Contingent business interruption.

� Acquired properties coverage for no additional premium or return premium on divestitures.


19 December 2016

Regional Focus

California

The California property market continues to be soft, affording some insureds double-digit decreases at renewal. After two decades without a major earthquake, capacity is ample, which translates to rate decreases and lower deductibles.

California’s workers’ compensation market continues to evolve as 2017 approaches. In general, the market has stayed on a slightly downward trajectory, with a softening rate environment fueled by ample capacity. Regulatory and legislative changes take effect on January 1, including:

� AB 2883 changes the eligibility requirements to 15 percent ownership for directors and officers electing to be excluded from coverage.

� Workers’ Compensation Rating Insurance Bureau announced changes to the eligibility and formulas for promulgation experience modifications. The eligibility threshold has been decreased to $10,100 and the variable split point component of the formula has changed, placing greater emphasis on frequency versus severity.

California Insurance Commissioner Dave Jones has issued the workers’ compensation pure premium rates for January 2017. Jones’ decision approves an overall average decrease that is 5.6 percent below the previously approved rate.


20 December 2016

US PROPERTY & CASUALTY INDUSTRY AT A GLANCE

All charts include mortgage and financial guaranty insurers.

2

$31.1

$19.0

-$21.0

-$2.9

-$10.4

-$36.5

-$16.7

$15.5$12.3

$8.7

-$1.5

-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016First Half

UNDERWRITING PERFORMANCE: CARRIERS SLIP TO UNDERWRITING LOSS IN EARLY 2016

$ Bi

llion

s

Source: Insurance Information Institute

The loss of $1.5B

in First Half 2016

compared to a profit

of $3.5B in First Half

2015.

NET WRITTEN PREMIUM GROWTH: PREMIUM GROWTH SLIPS IN 2016 FIRST HALF

2

Net Written Premium Growth

4.2%

-0.6%

-1.4%

-3.7%

0.9%

3.3%

4.3% 4.4% 4.2%

3.4%3.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016First Half


Premium growth

in First Half 2016

slipped to 3.0%,

down from a 4.1%

growth rate in First

Half 2015.


21 December 2016

US PROPERTY & CASUALTY INDUSTRY AT A GLANCE

All charts include mortgage and financial guaranty insurers.

3

Combined Ratio

105.1%

101.0%102.4%

108.1%

102.9%

96.2%97.0%

97.8%

99.6%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

2008 2009 2010 2011 2012 2013 2014 2015 2016First Half

COMBINED RATIO: PROFITABILITY SQUEEZED IN 2016


The industry combined

ratio, a measure of

underwriting profit,

was up to 99.6% in

First Half 2016.

INVESTMENT PERFORMANCE: RETURNS SHRINK IN EARLY 2016

4

Investment Performance

$55.7

$63.6

$31.4

$38.9

$52.9$56.2

$54.2

$58.7$56.6 $56.6

$26.5

$0

$10

$20

$30

$40

$50

$60

$70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016First Half

Dol

lars

in B

illio

ns

Investment gains consist primarily of interest, stock dividends, and realized capital gains and losses. Sources: ISO and Insurance Information Institute

Investment gains were

$26.5B in First Half

2016, compared to

$31.5B in First Half

2015.

© 2016 Lockton, Inc. All rights reserved.

property & casualty updateus market update …p&c maret update locton us 3 december 2016...

Documents