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Property Catastrophe Insights

Keep reading for essential info on program conceptualization, marketing, placing and servicing programs.

What brokers need to know about the property-catastrophe market in 2015

Author SamanthaKimball , 12/11/2014
After a year characterized by low catastrophe losses and soft market conditions, insurance agents and brokers can expect a continuation of competitive property-catastrophe pricing. This trend, combined with new, emerging risks and the ever-present risk of storms, earthquakes, and terrorism, will characterize the market in 2015. Even in this soft market, insurers are reserving the more competitive prices for new accounts and attempting to hold the line on renewals. This may tempt brokers to re-market programs. But figuring out when to re-market can be challenging; expertise matters here. Brokers must be able to read the market to know when to re-market or restructure, since that approach may not generate enough of the sought-after cost savings. Account loss experience and previous rate history certainly play a factor. It also may damage long-term relationships with insurers for short term gain. Relationships can be particularly important with the catastrophe-exposed account. The best strategy for securing rate reductions is attention to detail. To understand and price risks, underwriters rely on catastrophe models. These models, in turn, rely on detailed engineering and construction data to provide a detailed portrait of a risk. By providing detailed information about a risk, brokers can strengthen their relationship with underwriters and improve their bargaining positions. The insurance industry always has its gaze fixed on the horizon, and we are watching a few risks for the year ahead, including the ebola virus, terror and a more active Atlantic hurricane season. At the time of writing, the Terrorism Risk Insurance Act renewal is in Congressional limbo. At this point, brokers have likely addressed this issue with their clients. But in light of the growing threat posed by groups such as ISIS and Boko Haram, brokers may want to consider standalone terror coverage, especially for clients that truly need such coverage due to lender or investor requirements or locale. For more on what to expect in 2015, download our State of the Market: Property Catastrophe Insights Report. You can also read my interview with Insurance Business America, where I discuss the above topics, plus the insurance industry’s response to the ebola virus’s spread. Have questions? Suggested additions? Chat with us on Twitter (@napcollc).

TRIA Renewal 2014: the House bill vs. the Senate bill

Author SamanthaKimball , 10/9/2014

This guest post is by Alda Joffe, Executive Vice President for Operations at NAPCO.

Following the economic downturn resulting from the September 11 terrorist attacks, Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA). The Act was reauthorized by Congress in 2005 and 2007. This last renewal is scheduled to expire on December 31, 2014. At this point, it’s been reported that passage of this bill has been pushed into a lame-duck session that will follow November’s elections. The House of Representatives has yet to move on an extension bill passed by the House Financial Services Committee in June. The Senate already has passed its own extension bill, but there are differences which will need to be reconciled before the program reaches its current expiration date. Below, we take a close look at the differences that need to be reconciled between the House Committee and Senate Bill:

Act duration

  • Current: Expires on December 31, 2014.
  • Senate bill: Renew for seven years (December 31, 2021)
  • House bill: Renew for five years (December 31, 2019)

Trigger and timeline to certify a terrorist act

  • Current: A terrorist act must cause at least $5 million in insured losses to be certified for TRIA coverage by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General.
  • Senate bill: No changes (leaving $5 million trigger in place). No certification timeline; treasury must report to Congress on whether a timeline is advisable.
  • House bill: Removes $5 million trigger to certify an event and establishes a 90-day timeline for certification of a terrorist act.

Trigger for federal share of losses

  • Current: The aggregate insured losses from a certified act of terrorism must be $100 million in a year for the government coverage to begin; An individual insurer must meet a deductible of 20 percent of its direct earned premiums for their government coverage to begin.
  • Senate bill: No changes (leaving $100 million trigger in place).
  • House bill: For non-NBCR (nuclear, biological, chemical, radiological), $100 million annual increase until $500 million in 2019 For NBCR, retains $100 million trigger (given the insurer’s policy does not otherwise exclude such events).

Federal share of compensation

  • Current: The government covers 85 percent of an insurer’s eligible claims, while insurer contributes a 15 percent quota share of their claims, due to certified terrorism (after insurer’s 20 percent of annual direct earned premium deductible), up to a cap of $100 billion for all event loss.
  • Senate bill: Reduces the federal share to 80 percent (from 85 percent) of the amount that exceeds insurer deductible. The federal share’s reduction in such payments takes place in one percentage point increments per year for five years.
  • House bill: Reduces federal share to 80 percent (from 85 percent) of the amount that exceeds insurer deductible for non-NBCR events. The federal share’s reduction takes place in one percentage point increments per year; however, the House bill retains the 85 percent federal compensation for NBCR events if such events are covered by the insurer’s policies and, therefore, constitute “eligible claims.”

Insurance aggregate retention

  • Within this retention, Federal payout under TRIA will trigger policyholder assessments.
  • Senate bill: The aggregate retention amount increases $2 billion per year to $37.5 billion (from $27.5 billion); for losses under this amount, the federal government recoups its payments from policyholders via a surcharge on future premiums.
  • House bill: Beginning in 2016, this will be benchmarked to aggregate insurer deductibles for the preceding year.

Federal recoupment of payments (via policyholder assessments)

  • Current: If aggregate insured losses from terrorism are under $27.5 billion, the government is required to recoup 133 percent of government outlays by the end of 2017. As insured losses rise above $27.5 billion, the government can recoup a progressively reduced amount of the outlays. At a certain high insured loss level, which will depend on the exact distribution of the losses (i.e., if overall losses exceed the industry retention level), the government would no longer be required to recoup outlays, but would retain the discretionary authority to do so.
  • Senate bill: Increases recoupment amount to 135.5 percent from 133 percent (i.e., for losses under the aggregate retention amount, federal government would recoup 135.5 percent of government payments).
  • House bill: Increase rate from 133 percent to 150 percent of either (a) the amount of Federal compensation, or (b) the aggregate retention amount; includes language making recoupment mandatory up to the industry retention level.

Maximum Federal Loss

  • Senate bill: No change (retains current cap of $100 billion).
  • House bill: No change (retains current cap of $100 billion).

Risk-Spreading Mechanisms

  • Senate bill: No pertinent provision.
  • House bill: Creates advisory committee composed of private sector market participants to encourage development of private market risk-spreading mechanisms.

National Association of Registered Agents and Brokers (NARAB)

  • This legislation is also included in these bills. It creates a uniform agent/broker nonresident licensure clearinghouse.
  • Senate bill: Would establish NARAB, but provision would sunset after two years.
  • House bill: Would establish NARAB on a permanent basis.
Clearly, with this many differences to be reconciled, getting a long-term renewal for TRIA is a difficult prospect. With so much uncertainty as to what the TRIA may look like if it is renewed, carriers that provide standalone terrorism policies are pursuing clients for their product since the TRIA renewal has no impact on their terrorism policies. Furthermore, many standalone policies tend to offer more comprehensive coverage and flexibility to insureds. For more information on a comparison between the TRIA and standalone terrorism programs, see our previous post on the topic.

NAPCO CEO David Pagoumian discusses abundance and innovation at 2014 NAPSLO Annual Convention

Author SamanthaKimball , 9/23/2014
At last week's NAPSLO Annual Meeting in Atlanta, NAPCO CEO David Pagoumian spoke to WRIN.tv about how the calm year for natural catastrophes is affecting the property E&S insurance market. View the full video for his take on the implications of abundant capital in the reinsurance space and innovations ahead in natural catastrophe modeling.

Experiencing the Napa Quake: An insurance pro’s perspective

Author SamanthaKimball , 9/4/2014

This guest post is by Craig Hagan, Placement Associate at NAPCO.

I broker several commercial earthquake accounts in my role with NAPCO, but had never experienced an earthquake—that is, until two weeks ago.

On August 24, I was in Napa, California, enjoying wine country and visiting friends. Like the rest of the region, we were awakened at 3:20 a.m. by a 6.0 earthquake that looked and felt more like a wave or sway than the violent shaking you imagine.


Meet OLLE, the Occurrence Limit of Liability endorsement

Author SamanthaKimball , 8/28/2014

Undoubtedly, you’re familiar with many ways that insurers seek to limit their exposures to loss. But how well do you know OLLE?

Sometimes referred to as a Scheduled Limit of Liability Endorsement, an Occurrence Limit of Liability Endorsement (OLLE) has become commonplace on property insurance policies. The endorsement clarifies the amount of insurance that is available in any one occurrence for each location or for each subject of insurance (i.e. buildings, contents, inventory, business income, etc.). Oftentimes, in addition to defining their maximum loss potential, underwriters will impose this endorsement as a reaction to their perceived under-valuation of reported assets.


Marc Roberts / Foter / Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Four Reasons to Work With a Wholesale Insurance Broker

Author SamanthaKimball , 6/23/2014
Here’s a question we hear all too often: why would a company seeking insurance want to work with a small, specialty broker rather than a large firm? It boils down to that word “specialty.” But what does that look like in practice?

How to secure greater price reductions in the softening property-cat market

Author SamanthaKimball , 5/9/2014
As detailed in our previous post, we’ve entered a softer market for catastrophe-exposed property insurance, as companies are reducing prices due to an abundance of capital to be deployed and recent profitability. But brokers may be able to secure even greater price reductions for their clients. To do so, you should consider potential ways to restructure the programs, drive carrier competition, and obtain the most complete and accurate data possible for underwriters. Becoming more granular with construction detail can often reduce “modeled expected loss” and drive down prices even further.

State of the Market Spring 2014: Get ready for a softer market

Author SamanthaKimball , 4/12/2014
Get ready to share some good news with your customers. As we discuss in our Spring 2014 State of the Market: Property Catastrophe Insights report, we’re entering a softer, more competitive phase of the insurance market, so insurers are reducing pricing for most accounts.

Updates to severe thunderstorm model help us understand tornadoes

Author SamanthaKimball , 3/17/2014

Guest post by Colin Morris, Analytics Coordinator at NAPCO

Foter / Public domain
I recently visited risk modeling firm AIR Worldwide to learn about the latest updates to their severe thunderstorm model. This model covers straight line wind storms, tornadoes and hail storms and had last been updated five years ago. There was a lack of historical data on these types of storms. Until recently, we didn’t have the technology to properly document and use information about a tornado or severe thunderstorm outbreak. In the past ten years, science has been able to generate new ways to better track wind storms, including tornadoes.

What to expect from property catastrophe insurance pricing in 2014

Author SamanthaKimball , 1/14/2014
ZedZap / Foter.com / CC BY-NC-SA
As detailed in our last State of the Market report, the end of 2013 brought downward pricing trends in the property catastrophe insurance market. Now that the calendar has turned to 2014, we’re looking closely at the year ahead. Our executive vice president Bob Marsh shared his predictions with me:
  • Some markets will resist the call for lower rates—especially on CAT-driven accounts
  • By avoiding these markets or bringing in new capacity—especially primary— rate reductions of 5 to 25 percent might be realized.
  • Reductions may be partially based on the rate magnitude and rate history in the current pricing.
Of course, we don’t have a crystal ball and many factors could affect rates and pricing in the months ahead. What do you think the property catastrophe market will look like for the remainder of 2014? Let us know in the comments or tweet us at @NAPCOLLC.
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