before that. Rates overall are flat, premiums are flat, and the energy level in much of the market is flat. The only statistic that showed much of an increase in 2010 was policy count. That, however, is not a good thing. It means surplus lines brokers and carriers wrote more total policies in 2010 but ended up with slightly less premium compared with 2009.
According to Florida Surplus Lines Service Office (FSLSO) data, total premium (combined agent and independently procured coverage) for taxable and non-taxable commercial property coverage in 2010 was $1.895 billion compared to $1.998 billion in 2009. Policy count, however, was 114,848 in 2010 versus 106,321 in 2009, an increase of 8 percent.
While premium totals for renewals in 2010 were within a few percentage points of 2008 (approximately $1 billion total), new business numbers were down. FSLSO market data reports reveal that in 2008 new business totaled $754 million. That fell to $673 million in 2009 and fell again to $593 million in 2010, a drop of slightly more than 20 percent in two years.
Some of that drop-off can be attributed to the overall economy—businesses closing, ongoing enterprises reducing or eliminating coverage, and falling property insurance rates. However, standard markets also have encroached on the E&S market, writing risks they previously avoided.
Also helping keep rates down is the number of insurance carriers willing to write commercial property at very competitive rates and terms; the capacity and appetite of carriers and their reinsurers seem boundless.
Last year's lack of significant storm damage did nothing to convince carriers writing property in Florida to increase rates or to reduce the size of their books of business.
Change May Be on the Way
While Florida agents and brokers have become adept at adjusting to this "new normal" of stagnant rates and reduced premiums, there are reasons to believe change may be on the way.
More carriers and reinsurers are global entities, if not in their locations and staffing then certainly in their focus and premium distribution. As a result, carriers are increasingly recognizing the impact of events far removed from their geographic borders.
"We've heard that rates may increase due to recent worldwide catastrophe events, but it may be too early to tell," said Andy Packard, vice president and branch manager of Gresham & Associates in Orlando.
Karen Lampson, vice president and branch manager of Travis-Pedersen in St. Petersburg, concurred. "Many of our markets are talking more about rates and possible increases, but so far it's been more talk than action," she said. "It's not just global cat events [impacting pricing]. It's many things in combination, including the release of the latest modeling software like RMS 11.0 and its possible impact."
Version 11.0 of the RMS U.S. Hurricane Model is the most recent software version from Risk Management Solutions. Because it was released at the end of February, whatever interpretation insurance carriers will apply to their books of business is yet to be seen.
With the global nature of insurance carrier operations, there seems little doubt that catastrophic events around the globe—including those in New Zealand, Australia and Japan—will have an impact on property rates. Some statistics show that reinsurer's results already have fallen off slightly in 2010 without accounting for these latest events.
One survey of 19 U.S. firms conducted by the Reinsurance Association of America, based in Washington, D.C., showed that reinsurers reported a 95.4 percent combined ratio for 2010 versus 93.5 percent for 2009. The study also showed that net premium written in 2010 was $23.31 billion, down 2.5 percent from 2009, for the 19 reinsurers. With many reinsurance agreements expiring July 1, we may know soon if rates are changing.
Nobody Came to Florida
There were no new surplus lines companies approved in Florida during 2010 but this has not impacted commercial property rates here. "While I can't recall seeing any new markets, there are still more than enough," said Packard, a sentiment shared by many in the industry.
While this lack of interest may not have an immediate impact, it bears noting that what was once a steady influx of companies has now stopped, or at least slowed dramatically. Whether this is an aberration or a trend will take some time to sort out, but it warrants watching.
One factor that could increase E&S property submissions and written premium would be a change in the underwriting approach of standard markets. However, so far there is not much information to support the theory that the standard markets are retreating from their recent forays into traditional E&S risks.
"We have seen a few instances where standard markets are doing things a little differently, but no sweeping changes across the board from what retailers are telling me," said Lampson.
Carriers, agents, and brokers are all hoping that the combination of forces pressing on the commercial property market are sufficient to generate upward rate change in the market. Right now we may have to be content with the idea that this year's rates may be the same as last year—and not lower.
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