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Insured values in the property market still 30%-50% undervalued: Icat CUO

Icat logo with Cashman.jpg

Property valuations have become a big sticking point among many underwriters in the past two years, and according to the CUO for catastrophe MGA Icat, insured values in the market are steeply undervalued.

“We're seeing the market still 30%-50% undervalued from where we would say it needs to be written in some cases, and [yet] it's getting written by multiple markets,” Ashleigh Cashman told this publication in an interview. “And I would have thought that would tighten up, especially after the condo collapse in Florida.”

The executive spoke to this publication shortly after the Wholesale Insurance & Specialty Association’s (WSIA) annual conference in San Diego last week, where property market conditions heavily figured into underwriting discussions.

According to Cashman, widespread undervaluation has made it difficult to underwrite many accounts based on submitted values, though she said some brokers expressed a willingness to entertain the MGA’s own valuation estimates, if the underwriter were to provide a competitive quote.

“Of course, we're not competitive when we're valued 30% higher than what other markets are doing,” she said. Cashman said Icat will stand firm in its assessment of values, which will lead it to walk away from “a lot business”.

“It would be a great market change if we could see that start moving more than it has,” she said, referring to carriers' positions on submitted values. “That's one thing that really hasn't caught on too much at this point.”

“It's going to take more markets pushing to make that change, and that's a big, big thing that needs to be addressed.”

‘Significant retrenchment’ in the property market

Echoing commentary that has become much more common in the market in recent months, Icat’s CUO said that the next year was going to remain challenging for dealmaking, as companies scale back capacity and continue to take a firm line on terms and conditions.

“I think 2022 is going to be a tough year for brokers to place business, tougher than what we’ve seen the last couple of years, which I think brokers already thought was a fairly tough environment.”

She added that the heavy cat loss year of 2021, after a heavy year in 2020, had led to a “significant retrenchment” of capacity among capacity providers.

“There are going to be a lot of gaps in areas where solutions no longer exist,” Cashman predicted. Two areas the executive said were especially stressed at the moment were property risks in Louisiana and for locations built before 1990.

She said that Icat historically has not had a significant footprint in Louisiana, and it also tends to focus on newer business, so brokers would not see much change in the underwriter’s appetite in those areas, but the MGA would look to rein in limits and lower its exposure overall.

Cashman said that capacity providers – both prospective and current for the MGA – were seeking more business written on a quota-share basis and to target accounts with lower total insured values (TIVs).

“Icat specifically will be really honing in on the smaller TIVs within its middle market segment in 2022,” she said. The company is dropping its appetite for new business to $25mn and under in limits, from up to about $60mn before.

“Eligible accounts will still get a renewal quote,” she said of the company’s higher limit business, “but we'll be looking at primary limits rather than full limits”.

Underwriting actions the MGA has taken in the past year include pushing up minimum deductibles nationwide – including for quake – and removing sub-limits for loss causes such as wind-driven rain and sewer backups. In other words, she said removing coverages were the “bells and whistles in a softer market”.

That message to brokers at WSIA was “pretty well received”, Cashman said, and one that’s been heard “fairly consistently” across the market. “It's painful at the beginning, but when the market catches up, it's good.”

“I think brokers and markets are at a place where they just want solutions,” she explained. “They want to know where people are going to be able to play and have clarity around that.”

‘Not many’ traditional program carriers looking to grow

With capacity tight, Cashman described a market where not many traditional program carriers are looking to grow, but she said that the fronting market was one of Icat’s “key focuses” for capacity domestically.

The interest in London, she said, was “mixed”, with feedback more weighted towards providers not looking to add exposure.

“To get something new done in London, they would have to see the case for trading you in for someone else,” she said. “There are only a couple of syndicates that have some growth in their plans.”

Argo, Hamilton and Canopius are among those operating in the London market that have withdrawn their wind capacity, and Cashman suggested more could be on the way as syndicates finalized capacity plans for 2022.

Rate predictions for 2022 move to 20%+

Despite some indications that more competition came into the market at mid-year, the CUO said the MGA has been getting a pretty consistent level of rate change for the past three years and even expressed some surprise at not seeing it taper at earlier renewals.

Previously there had been some expectation that the tightness of the property market would abate in 2022.

Cashman said that at mid-year, she would have predicted rate increases in 2022 of between 5%-15%, but now she is “pretty bullish” that rates will be up 20%+

“Most in our segment still think that we need more rate from where we bottomed out,” she explained. “There is no talk about that slowing down at all anymore, and in fact, I think it accelerates post-Ida.”

Cashman said that despite the fact that Hurricane Ida “was not really an event for Icat,” it moved the market, along with the significant toll of the European flood losses.

So far, Cashman said, claims for both Winter Storm Uri and Ida have been well behaved.

“We’re not seeing any creep [on Uri] at all,” she said, though she noted more of the MGA’s exposure was coastal and perhaps not representative of claims behavior for the larger industry.

On Ida, she noted that Icat’s losses have been closing quickly and are currently “not even close” to the MGA’s original estimates.

“There's still obviously questions in the market of how we even get to the estimated industry loss,” Cashman said. “There's just not a lot of volume for us from Ida to have any big observation, especially if it's on a claims count basis.”

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