real estate and hotel practice views - willis group · the willis real estate and hotel practice...

In an insurance market where the tenor of the news oftendepends on where you sit the Willis Real Estate and HotelPractice hosted its First Annual Symposium in ChicagoParticipants included clients real estate pundits andinsurance underwriters and executives who addressed trendsand forward-looking issues as well as the challenges of ourcurrent environment We cover both areas in this edition

MARKET TRENDS UPDATE As we prepare this edition of Viewswe are in the midst of a hurricaneseason that has gotten off to an active start How this season unfoldswill be one of the determining factors in the ultimate direction ofrates

Forecasts from The National Oceanic and AtmosphericAdministration (NOAA) and Weather Service International(WSI) predict this season will be close to the long-term averagewhich is 12 named storms seven hurricanes and three intensehurricanes of category three or stronger What always remains anunknown in spite of the most careful calculations is where and if thestorms make landfall as well as their size and intensity when they domake landfall Karen Clark a noted Catastrophe Modeler and CEO ofKaren Clark amp Co estimates insured losses of $100 billion if a futurestorm followed the path of the 1926 Miami hurricane1

Increasingly insurers are paying close attention to damages fromunnamed storms Last yearrsquos tornadoes and the June 13 2012hailstorm that struck the Dallas area resulting in an estimated $2 billion in insured losses are examples of these large loss events2

It is possible that we will see underwriters adopt a more conservativeposture relative to rates and deductibles on risks that they believe aresusceptible to these natural disasters In addition more attention isbeing paid to flood losses resulting from these unnamed storms Thisis an issue that we will continue to monitor

According to Moodyrsquos US PampC insurers saw their first quarter netincome soar by 69 as lower catastrophe losses helped drop thecombined ratio to 96 compared to 102 at the end of the firstquarter in 20113

Despite this favorable result in underwriting performance TowersWatson reported prices for PampC lines rose by 5 from a year earlier ndashthe largest quarterly increase since 2004 continuing the upward

VIEWSreal estate and hotel practice

July 2012 wwwwilliscom

TABLE OF CONTENTS

Market trends Update 1

willis real estate and hotel

syMposiUM 3

MUltifaMily hoUsing sMoking

bans 5

the rebirth of Mold claiMs 6

willis online expands

new real estate portal for

office amp indUstrial clients 7

hail claiMs how Many losses

are yoU oVerlooking 9

contacts 10

continued on page 2

2 Willis North America bull 0712

trajectory of rates4Many believe this upward trend reflects several factorsnot the least of which is an assessment by underwriters that rates need to beadjusted to compensate for increasing exposures and deterioratingunderwriting performance not reflected in the soft market pricing thatexisted for much of the past decade The introduction of RMS 110 also rankshigh as a contributing factor

Property and Workersrsquo Compensation lines of coverage are seeing thebiggest rate increases with less of an impact on third-party lines of coverageWorkersrsquo Compensation in particular is experiencing deterioration inunderwriting results and is a drag on PampC insurerrsquos profitability In 2011Workersrsquo Compensation had a statutory combined ratio of 1172 For thefive-year period 2007 to 2011 the line generated a combined ratio of 1085about seven points worse than commercial lines as a whole5

Workersrsquo Compensation results are being adversely affected by sharpincreases tied to medical costs escalating costs tied to the use ofprescription drugs and premium erosion caused by the relatively high rateof unemployment

Rates for Workersrsquo Compensation are expected to continue to rise in manystates with recent rate hikes of 89 in Florida and 91 in New York beingexamples of this state-specific issue6

The reinsurance market is moderating this general trend toward higherrates A recent article in National Underwriter stated ldquoContrary to theexpectations of many primary carriers reinsurers have not drasticallyraised rates this year despite unprecedented disaster related losses in2011rdquo7 This circumstance while unexpected and welcome is the result ofmany factors including the abundance of capacity and a diminishingappetite for reinsurance among ceding companies Some of this capacity iscoming from ldquonontraditional sourcesrdquo such as catastrophe bonds andsidecar deals

In our last edition of Viewswe stated as respects the direction of rates thatit is a bifurcated market with bad news for some but not for all This remainsthe case with clients who have good loss records controlled and wellmanaged exposures with moderate to minimal catastrophe exposurereceiving the most favorable terms Instead of using a broad brush of rateincreases across the board a characteristic of a hard market manyunderwriters are being more discerning applying rate increases where theydeem it necessary to return an account to profitability

Headwinds for insurers (which we continue to monitor and which willdetermine the future direction of rates) include the low-interest rateenvironment the escalating losses incurred by the Workersrsquo Compensationline and perhaps most importantly the impact from natural or man-madecatastrophes that result in a substantial surplus-depleting event

Another determining factor we are monitoring closely is the size and amountof reserve releases and the overall adequacy of reserves Insurers have been

Market Trends Update ndash continued from page 1

continued on page 3

According to Moodyrsquos US

PampC insurers saw their first

quarter net income soar by

69 as lower catastrophe

losses helped drop the

combined ratio to 96

compared to 102 at the

end of the first quarter in

20113

Despite this favorable result

in underwriting performance

Towers Watson reported prices

for PampC lines rose by 5 from

a year earlier ndash the largest

quarterly increase since

2004 continuing the upward

trajectory of rates4 Many

believe this upward trend

reflects several factorshellip


The Willis Real Estate and Hotel Practice held its First AnnualSymposium in Chicago on June 13-14 2012 Symposium highlightsfollow

day one

SANDY MONAGHAN CCIM MANAGING DIRECTOR OF INVESTMENT SERVICES AT

CUSHMAN amp WAKEFIELD INC kicked off the symposium with mixed newsHe told attendees that the hotel and multifamily sectors wererecovering nicely but not without challenges The industrial sector isalso recovering in line with the total economy While the office andretail sectors are improving he said they continue to face obstaclesparticularly the suburban office sub-sector There is also still someconcern about re-financing and the ability of the capital markets torespond to the over $1 trillion in maturities that lie ahead It is a giventhat the recovery also hinges greatly on economic conditions in theUS and globally

PETE THOMAS CHIEF RISK OFFICE AND EXECUTIVE VICE PRESIDENT OF WILLIS RE

reported that there is little evidence of a broad-based significanthardening of the property and casualty reinsurance insurancemarket Capital and competition put constraints on individualreinsurersrsquo ability to dramatically raise rates Classic hard marketshave been replaced by class-specific and regionally-specific hardmarkets created by localized conditions He went on to address theemerging risks with a focus on sustainability climate change andcyber risk In talking to these risk managers Pete framed hiscomments as respects emerging risks by stressing the importance ofand collaborative challenges in creating robust risk (and opportunity)inventories as the foundation for strategic planning ERM andinvestment management

PETER FRIEDMAN PARTNER AND HEAD OF CHICAGO REAL ESTATE GROUP FOR

HOLLAND amp KNIGHT addressed the 2012 elections and a number ofissues such as carried interest FIRPT and their possible impact onreal estate valuations The consensus was that rather than pickingwinners and losers a comprehensive approach to tax reform was thebest approach to these and other industry issues The Health CareReform Act has the potential to impact operating expenses medicaloffice space capacity and pricing (the Supreme Court decision hassince been made)


continued on page 4

releasing reserves into earnings in the past fewyears but the size of companiesrsquo reservereleases are expected to decline at some pointplacing further strain on their bottom lineswhich could cause rates to rise further

To achieve the optimal result our advice as

always is start early provide as much information as possibleincluding both primary and secondary building characteristics treatthe underwriter as a partner and determine their intent for therenewal as early as possible review alternate program structuressuch as higher or lower retentions review loss reserves to determinetheir accuracy work with the broker to present your account to theunderwriter and communicate often

WILLIS REAL ESTATE AND HOTEL SYMPOSIUM

The symposiumrsquos first-day dinner speakerwas three-term former CongresswomanMELISSA BEAN NOW PRESIDENT AND CEO OF THE

EXECUTIVESrsquo CLUB OF CHICAGO She told thegroup that the spirit of bipartisanship is whatis needed to move the country forwardwhichever party is in power

day two

Day Two began with an interesting discussionof Property CAT modeling and theparticipantsrsquo views as to its present andfuture impact on both underwriting andbuying decisions GLEN DARASKEVICH A SENIOR

VICE PRESIDENT OF KAREN CLARK amp COMPANY

reviewed the history of hurricane activity inthe Atlantic Basin discussed the history ofCAT Modeling and subsequent revisions He

also commented on the pros and cons ofdifferent modeling methods KEVIN LEE VICE

PRESIDENT AND SENIOR CREDIT OFFICE FOR MOODYrsquoS

discussed how Moodyrsquos views an insurerrsquosCAT exposure and CAT models He also notedthat RMS has acknowledged that some of itsassumptions may be too conservativesuggesting there may be an update to RMS 11at some point

SANJAY GODHWANI EXECUTIVE VICE PRESIDENT OF

LEXINGTON INSURANCE COMPANY drew thecorrelation between rate increases and themodel changes He effectively used a profitand loss statement as a reference point toillustrate the impact of the changes

AN UNDERWRITING PANEL consisting of HemantSarma US Property Manager of the globalreal estate unit of Chubb CommercialInsurance Dee Torgerson-Rismyhr ARMReal Estate Product Line Manager forLexington Insurance Company James SegriffSenior Vice President and Head of Propertyfor Commercial Markets for Zurich NorthAmerica Shaun Barrington Executive VicePresident of Willis London and Pete Thomasof Willis Re agreed that all of the insurers hadan appetite for real estate but that it wasmuted with respect to residential

Dee Torgerson-Rismyhr indicated that non-CAT cats were what kept her up at night (egunnamed windstorms aka tornadoes ormicro bursts hail and floods) She also citedvaluation as coming under greater scrutinySeveral risk managers responded that thosewith proper valuations did not want tosubsidize others who did not follow a propervaluation discipline

All of the underwriters believed that it is amarket in transition where rates are firmingJim Segriff asserted that despite investmentgains in 2011 which were above 2010 by $28billion (Insurance Information Institute)rates continue to be pressured by fallinginvestment income

Shaun Barrington of Willis London reiteratedthat real estate is a good success story over thepast 20 years in London Bermuda and

Europe but also echoed that residential was the toughest sector PeteThomas of Wills Re stated that opportunistic capital in sidecars andcat bonds have offset pricing pressures

Both underwriters and Willis clients are concerned over the continueddeterioration of the Workersrsquo Compensation market results Medicalcosts and claim severity are up due to the cost of prescription drugsand the possible correlation with increased frequency and theeconomic downturn Symposium participants also noted that we have

n An aging workforcen Increased cost of prescription drugsn Medical inflationn A need to educate our workforces on the use of WC

Pete Thomas commented that risk managers need to keep an eye on theplaintiffsrsquo bar as they are developing increasingly more sophisticatedand differentiated business models These are models that will helpthem perfect ldquonewrdquo casualty and workersrsquo compensation claims

The panel stressed the importance of differentiating your companywithin your sector to the underwriter Jim Segriff noted that real estateand hotel buyers should be

n Knowledgeable about what drives your lossesn Providing best of class submissionsn Be a partner with your insurern Be an informed consumer

THE FINAL SYMPOSIUM PANEL comprised Willis clients and was chaired byLance Ewing Vice President and Industry Practice Group LeaderHospitality and Leisure Chartis Panel members were Timothy KraftRisk Manager for The JBG Companies Gus Napoli Vice PresidentRisk Management Host Hotels and Resorts Shari Natovitz VicePresident Risk Management Silverstein Properties and StephenUpshaw Vice President and Risk Manager Equity Residential

The client panel strongly voiced their desire to receive ldquotimely andaccuraterdquo issuance of policies They also expressed concern over theimpact of carrier and broker turnover With respect to carriersturnover becomes an obstacle to developing relationships at multiplelevels Turnover can be more problematic with a broker ifinstitutional knowledge becomes too concentrated

With respect to underwriter changes risk managers emphasized thatldquouninformedrdquo conversations by underwriters were frustrating to bothclients and brokers and led to questioning whether some underwritingdecisions are being made with full and accurate information

The risk managers all thought that quality broker services wereavailable and utilized but that they should be required and demandedby the risk manager

Willis Real Estate and Hotel Symposium ndash continued from page 3



MULTIFAMILY HOUSINGSMOKING BANSThere is an increasing trend towards the implementation of smokingbans in both private and public multifamily housing This trend isbeing supported by

n FIRE LOSSES ndashBetween 2006 and 2008 an estimated 9000smoking-related fires in residential buildings resulted in 450 deaths 1025 injuries and $303 million in property losses8

n HEALTH CONSIDERATIONS ndashThe Surgeon General has reported thatthere is no safe level of exposure to secondhand smoke a knowncarcinogen9 Secondhand smoke cannot be controlled by filtersand ventilation systems which can actually spread it Accordingto ASHRAE ldquoAt present the only means of effectivelyeliminating health risks associated with indoor exposure is toban smoking activityrdquo10

n LEGAL CLIMATE ndashThe scientific evidence provided by the SurgeonGeneral enables tenants to seek legal action against landlordsthat do not take adequate steps to protect them againstsecondhand smoke Claims for damages or restraining ordershave been made against both smoking tenants and landlordsunder a variety of common law theories such as warranty ofhabitability and quiet enjoyment constructive eviction andtrespass11 The Americans with Disabilities Act and Fair HousingAct enables tenants with disabilities to seek reasonableaccommodations from landlords in order to protect them fromsecondhand smoke health hazards State disability laws provideprotected tenants with additional avenues to seek legal recourse

n FINANCIAL IMPACT ndash In addition to the exposure to potential firelosses the cost to clean an apartment unit that has been exposedto smoke can add an estimated $300 to $3000 in turnover costsbased on how much the resident smoked and for how long theyresided in the unit12

n SMOKING CESSATION ndashThe percentage of adult smokers has declined from 42 in 1965 to 19 in 201013 A July 2009 surveycommissioned by the NYC Coalition for a Smoke Free City foundthat 58 of the respondents would pay more for smoke free housingwith 68 preferring to avoid housing that permitted smoking whichinfers that residential smoking bans may not hurt rentals14

Property owners have a legal right to restrict smoking on theirproperty including individual units The courts have consistentlyfound that there is no fundamental right to smoke and that smokersare not a protected class of people15 In September 2010 HUDencouraged owners participating in multifamily rental assistance to

continued on page 6


adopt smoke free housing policies To date over 250 public housingauthorities in 27 states have implemented smoke free policies16

Smoke free policies protect landlords from potential liability claimsand save money with respect to maintenance turnover costs and firedamage (insurance premium credits may also be available) So howdo property owners transition their properties to a smoke freeenvironment

n Conduct a tenant survey to solicit their inputn Hold a meeting to inform tenants of the new smoke free policyn Establish a clear policy that bans indoor smoking The property

owner will need to determine if safe designated exteriorsmoking areas or designated smoking buildings can be createdor if a 100 smoking ban needs to be implemented

n Amend new leases to legally include the new smoke free policy n Consider offering incentives to those who would like to

voluntarily amend their current lease through a smoke free leaseaddendum

n Promote smoke free status to gain new tenants Consider listingproperties on a smoke free apartment registry

n Have a process in place for enforcement and follow through withconsequences Enforceability should be similar to any other

lease provision that pertains to anuisance such as excessive noise

While some property owners have taken theposition of grandfathering existing tenantsthis approach tends to complicate the healthand legal issues already outlined Finally thisis about the smoke not the smoker so avoidmaking any new policy personal

The following organizations can provideproperty owners implementing a smoking banwith technical assistance in the form of tenantsurveys and sample lease language additionalinformation concerning the hazardsassociated with secondhand smoke andresources available to smokers who areinterested in quitting

HUD Smoke-Free Housing ToolkitGlobal Advisors Smokefree Policy (GASP)Maryland Smoke Free Apartments Smokefree Apartment House Registry

THE REBIRTH OF MOLD CLAIMSIn September 2006 a key appellate court decision in Manhattan known as the ldquoFraser decisionrdquo (Fraser vs 301-52 Townhouse Corp 57 AD3d 416 (2008) blocked millions of dollars in legal claims for damages related tothe health effects of mold in buildings The decision essentially stated that there was no scientific consensus thatair-borne mold spores caused illnesses However in March of this year the same appellate court overturned alower court ruling allowing a toxic mold lawsuit to go forward finding that scientific literature was nowldquoindicative of a causal relationshiprdquo (Cornell v 360 W 51st St Realty LLC 2012 NY Slip Op 01643)Thisnew ruling has set precedent and confirmed that the scientific studies are sufficient for the courts to show ahealth link based upon exposure to mold This decision could influence other courts as well and shouldtherefore be of particular concern to landlords co-ops and condo boards not just in New York but across thecountry as this new ruling potentially opens the door for thousands of similar lawsuits

insUrance reaction to Mold decision

From an insurance perspective this coverage is still widely available via the environmental insurance marketsand they have not yet shown signs of changing their underwriting appetite for mold-related risk But thecarriers are closely monitoring this new development for any claim trending that may take shape in the futureWe also anticipate closer underwriting scrutiny of an insuredrsquos ldquoMoldWater Control amp Response Planrdquo whichshould outline the procedures and protocols that an organization has in place to prevent mold-related issuesFor more information please contact Anthony Wagar in our Environmental Practice at 212 915 7768 oranthonywagarwilliscom

Multifamily Housing Smoking Bans ndash continued from page 5


Two North American Practices ndash Real Estate and Hotel and StrategicOutcomes ndash have joined forces to create the Willis Online (WOL)Office amp Industrial Real Estate Portal a customized secure websitedesigned specifically for our real estate clients in these marketsegments with tools that provide a high level of communicationbetween our clients and Willis account staff

featUres

247 access to the Business and Legal Resources (BLR)reg safetywebsiteBLR is the leading provider of employment safety andenvironmental compliance solutions

Briefly the BLR subscription offers

n TRAINING LIBRARY (TRAINING RESOURCES) ndashBLRrsquos carefully researchedtraining solutions access more than 200 customizable trainingtoolkits including slides speaker notes quizzes handoutscertificates and activities many of which are available in Spanish

n COMPLIANCE ANALYSIS AND ASSISTANCE ndash ldquoPlain-Englishrdquo safety andhealth regulatory analyses interpretations and regulatoryactivity notices of changes to federal and your statersquos OSHAregulations

n BEST SAFETY PRACTICES AND WHITE PAPERS ndashDo it right the first timewith best practices OSHA case studies and white papers fromleading safety experts

n NEWSLETTER WIzARD ndashCreate employee newsletters that can beemailed printed or linked on your company intranet With theYou can edit an existing article select another from an extensivearticle library or create your own with the built-in text editor

n SAFETY NEWS WEEKLY E-zINE ndashBLRrsquos safetyprofessionals save you time and troublewith valuable insight into new regulatorydevelopments ndash updated daily

n ANSWERS FROM THE EXPERTS ndashGetpersonalized answers to your safetyquestions in one business day from BLRrsquosOSHA experts

office and indUstrialclient toolkit

The Client Toolkit contains employee safetyand operational risk management contentfocusing on office and industrial issues As new content is added to this module userscan be automatically alerted if they choose this option

For example the Toolkit provides more than 12 draft exposure loss control and self-assessment site surveys that can be used as a starting point by property managersto measure their loss exposures in order tomeet their operational standards The ToolkitConcierge also provides more than 50downloadable employee safety trainingPowerPoint presentations that cover a widerange of topics as shown below Thesepresentations can be branded andor editedby our clients for distribution to theirmanagement teams

continued on page 8

WILLIS ONLINE EXPANDS NEW REAL ESTATEPORTAL FOR OFFICE amp INDUSTRIAL CLIENTS


n Acquisitionsn ADA Compliancen Bed Bugsn CAT Modelingn Claim Issuesn Contract Review Guidelinesn Crime Preventionn Emergency Preparednessn Employee Safety and Training

l Driver Safetyl Employee Injury Preventionl Hazard Communicationsl OSHA Recordkeepingl Safety Management

n Environmentall Asbestosl Brownfieldsl Carbon Monoxidel Legionellal Hazardous Waste Managementl Pesticidesl Water Intrusion ndash Mold

n Fire Safetyn Insurance Certificatesn Operational Newslettersn Site Surveysn Walking Surfaces

willis online (wol) sites

n Establish an ongoing Client Service Planthrough the shared ACTIONS and CALENDAR

functions

n SHARED DOCUMENTS ndashCreate one-stop accessto all documents related to the clientrsquosproperty and casualty insurance programsndash policies contracts forms and Willisdeliverables ndash to cut down on transactionalinteractions with each client

n Automatic client notification of MARKET

SECURITY REPORTS on insurance carrierscurrently writing their program Availableby request

n SUB-SITES ndashCreate customized client self-assessment tools thatfocus on critical risk exposures at each property location thatmay impact the clientrsquos cost of risk Available by request

n Receive all publications created by the National Real Estate andHotel Practice such as our quarterly newsletter Views throughthe WILLIS PUBLICATIONS portal

n Available 247 from any location via the internet Clients areprovided a username and can set their own unique password

client discoUnt portal

The DISCOUNT PORTAL is provided to clients for the purchase of a selectgroup of goods and services (eg Bed Bug Begone organic spray CAPIndex crime reports HailAlerts hail monitoring service and StoveTopFireStop fire suppressor) at pre-negotiated discounts ranging from21 to 38

adding ValUe and iMpact

This new tool delivers industry-leading value to our clients that willpositively impact their long-term cost of risk For example an annualsubscription to BLR for three users costs almost $3000 if placed directlyThis subscription is just one of the modules that make up the WOL Office amp Industrial Real Estate Portal that is available to Willis clients

Contact your Willis Real Estate or Strategic Outcomes PracticeProfessional or any of the people listed in the Contact section of thisnewsletter if you would like to participate in an online demonstrationof this product

Willis Online Portal Expands ndash continued from page 7

Willis North America bull 07129

HAIL CLAIMS HOW MANYLOSSES ARE YOUOVERLOOKINGDid you know that over 70 of hail-related losses are completely overlookedand never reported to insurance carriers In a recent groundbreaking studytwo well respected Fortune 1000 companies discovered that their managersonly inspect 9-13 of their buildings that are impacted by hail stormscontaining 2rdquo diameter or larger hail stones17 That begs the questionhellip Why

The primary reason is that 65 of hail falls outside of the 8 AM ndash 5 PMMonday ndash Friday work week That means that two out of three hail stormsoccur while local managers and tenants are at home focused on personalmatters or are even sleeping In addition even if your managers are on theclock they are often responsible for managing multiple locations and so theymay be at one property while it is hailing at a different property To add to thechallenge interior leaks often donrsquot begin for months or even years after ahail storm By this point the hail event is long forgotten if ever recognized atall and the cause of the leaking roof is misdiagnosed as a maintenance issueleaving the roof to be replaced with capital dollars

So what exactly can you do to prevent this from happening in your companyThis is where HailAlertstrade comes in

HailAlerts is a revolutionary new hail monitoring service that automaticallyalerts commercial building owners every time damaging hail impacts one oftheir properties HailAlerts pinpoints exactly when and where hail falls andwhen these locations match up with one of your properties It also automaticallyemails a Hail Event Report within 24 hours detailing the hail size location andtime of the event along with a list of your impacted properties

This immediate notice allows you to

n Accurately and quickly identify all hail damage n Mitigate additional consequential damages through immediate responsen Avoid costly and unnecessary business interruptionsn Prevent hail-loss claim oversightsn Preserve capital dollars

HailAlerts is much more than just a convenient service it is a powerful riskmitigation and cost-saving tool for your company Through the savings ofcapital funds HailAlerts more than pays for itself For the majority of ourcustomers the avoidance of just one overlooked loss pays for the service ontheir entire portfolio of buildings for 10+ years Willis clients that areenrolled on a Willis Online Real Estate amp Hotel Portal receive a 25 discounton the monitoring fee Additional information on HailAlerts technology andservices can be found on their website at wwwHailAlertscom or bycontacting them at infoHailAlertscom or 877 775 4245


Brian RuaneDirector+1 212 915 7971brianruanewilliscom

Steve SachsDirector+1 410 964 5800stevesachswilliscom

CONTACTSIf there are subjects you would like to see addressed in future issues please contact Brian Ruane or Steve Sachs

For additional information on the topics discussed in this issue or any others for which our Real Estate and HotelPractice might provide assistance please visit our website at williscom

Willis is an insurance consulting and brokerage firm We are not attorneys and this publication is not to be considered legaladvice Please consult with your attorneys prior to incorporating any of our suggestions into an actual contract or agreement

1 httpwwwpropertycasualty360com20120601qa-karen-clark-discusses-cat-management-as-hurrica2 httpwwwinsurancejournalcomnewssouthcentral20120618251965htm3 httpwwwpropertycasualty360com20120516moodys-us-pc-1q-net-income-soars-rate-increases-ac4 httpwwwinsurancejournalcomnewsnational20120611250864htm5 httpwwwpropertycasualty360com20120625fitch-workers-comp-results-dragging-down-pc-indust6 httpwwwbusinessinsurancecomarticle20111016NEWS08310169987tags=|87|304|927 httpwwwpropertycasualty360com20120604defying-expectations-reinsurance-rates-remain-surp8 US Fire Administration National Fire Data Center Topical Fire Series Report Smoking-Related Fires in Residential BuildingsVolume 11Issue 4 September 2010

9 US Department of Health and Human Services The Health Consequences of Involuntary Exposure to Tobacco Smoke A Report of theSurgeon GeneralUS Department of Health and Human Services Centers for Disease Control and Prevention National Center forChronic Disease Prevention and Health Promotion Office on Smoking and Health 2006

10 American Society of Heating Refrigerating amp Air Conditioning Engineers (ASHRAE) 2010 position document on secondhand smoke11 A Massachusetts jury concluded that a couple could be evicted from their Boston condominium for heavy cigarette smoking even thoughtheir lease did not prohibit smoking Plaintiffrsquos counsel convinced the Boston Housing Court jury that the heavy smoking created anuisance to other residents in the building which was prohibited in the lease agreement (Harwood Capital Corp v Carey June 10 2005)In Oregon a non-smoking tenant sued after her landlord moved a known smoker into the apartment below hers claiming she began tosuffer asthma and respiratory problems and that the landlord had breached his duty to keep the premises habitable The jury agreedreduced her rent by 50 and ordered the landlord to pay her doctorrsquos bills (Fox Point Apt v KippesNo 92-6924 Lackamas County (Ore)Dist Ct 1992) In California plaintiffs sought an injunction prohibiting harassment claiming that they were exposed to cigarette cigarand marijuana smoke from the garage below The court issued a restraining order prohibiting the garage owner from smoking in thegarage (Layon v JolleyNo NS004483 Superior Ct of Calif Los Angeles County 1996)

12 National Multi Housing Council No smoking Policies In Apartments February 1 200813 Lepkowski JM Mosher WD Davis KE Groves RM Van Hoewyk J The 2006ndash2010 National Survey of Family Growth Sample design andanalysis of a continuous survey National Center for Health Statistics Vital Health Stat 2(150) 2010

14 The New York Times ldquoFor Some Smokers Even Home Is Off Limitsrdquo CJ Hughes November 15 200915 McGinnis v Royster 410 US 263 (1973)16 Legal Resources Center for Tobacco Regulation Litigation amp Advocacy University of Maryland Francis King Carey School of LawSmoke-Free Multi-Unit Housing April 2012

17 httpwwwhailalertscomwp-contentuploads201207Case-Study-Telecom-companypdfhttpwwwhailalertscomwp-contentuploads201207Case-Study-REIT-Charlotte-NCpdf


trajectory of rates4Many believe this upward trend reflects several factorsnot the least of which is an assessment by underwriters that rates need to beadjusted to compensate for increasing exposures and deterioratingunderwriting performance not reflected in the soft market pricing thatexisted for much of the past decade The introduction of RMS 110 also rankshigh as a contributing factor

Property and Workersrsquo Compensation lines of coverage are seeing thebiggest rate increases with less of an impact on third-party lines of coverageWorkersrsquo Compensation in particular is experiencing deterioration inunderwriting results and is a drag on PampC insurerrsquos profitability In 2011Workersrsquo Compensation had a statutory combined ratio of 1172 For thefive-year period 2007 to 2011 the line generated a combined ratio of 1085about seven points worse than commercial lines as a whole5

Workersrsquo Compensation results are being adversely affected by sharpincreases tied to medical costs escalating costs tied to the use ofprescription drugs and premium erosion caused by the relatively high rateof unemployment

Rates for Workersrsquo Compensation are expected to continue to rise in manystates with recent rate hikes of 89 in Florida and 91 in New York beingexamples of this state-specific issue6

The reinsurance market is moderating this general trend toward higherrates A recent article in National Underwriter stated ldquoContrary to theexpectations of many primary carriers reinsurers have not drasticallyraised rates this year despite unprecedented disaster related losses in2011rdquo7 This circumstance while unexpected and welcome is the result ofmany factors including the abundance of capacity and a diminishingappetite for reinsurance among ceding companies Some of this capacity iscoming from ldquonontraditional sourcesrdquo such as catastrophe bonds andsidecar deals

In our last edition of Viewswe stated as respects the direction of rates thatit is a bifurcated market with bad news for some but not for all This remainsthe case with clients who have good loss records controlled and wellmanaged exposures with moderate to minimal catastrophe exposurereceiving the most favorable terms Instead of using a broad brush of rateincreases across the board a characteristic of a hard market manyunderwriters are being more discerning applying rate increases where theydeem it necessary to return an account to profitability

Headwinds for insurers (which we continue to monitor and which willdetermine the future direction of rates) include the low-interest rateenvironment the escalating losses incurred by the Workersrsquo Compensationline and perhaps most importantly the impact from natural or man-madecatastrophes that result in a substantial surplus-depleting event

Another determining factor we are monitoring closely is the size and amountof reserve releases and the overall adequacy of reserves Insurers have been


continued on page 3

According to Moodyrsquos US

PampC insurers saw their first

quarter net income soar by

69 as lower catastrophe

losses helped drop the

combined ratio to 96

compared to 102 at the

end of the first quarter in

20113

Despite this favorable result

in underwriting performance

Towers Watson reported prices

for PampC lines rose by 5 from

a year earlier ndash the largest

quarterly increase since

2004 continuing the upward

trajectory of rates4 Many

believe this upward trend

reflects several factorshellip



day one








continued on page 4







day two

































continued on page 6




















featUres












continued on page 8









functions



































day one








continued on page 4







day two

































continued on page 6




















featUres












continued on page 8









functions






























































continued on page 6




















featUres












continued on page 8









functions




















































featUres












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functions








































functions

































real estate and hotel practice views - willis group · the willis real estate and hotel practice...

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