APARTMENT/CONDOMINIUMS

Rough Notes, Nov 2004 by France, Larry G

Location, location, location

Location is important not only for appreciation in the value of the property but also for the part that events such as the recent Florida hurricanes can play in major losses. The panhandle of Florida saw waves of more than 50 feet consume not only the beach but apartments and condominium units as well. The total impact of the Florida hurricanes on pricing, capacity and underwriting acceptability for this class will not be known for some time.

Apartments and condominiums is one of the fastest growing property classes in North America. Some years ago a large condominium unit that was constructed across from the San Diego Convention Center remained partially empty. In the past two years, however, that complex has had little, if any, unoccupied space. New condominium construction is running at a record pace, and most are sold prior to breaking ground or completion. This trend is the same all over North America as well as other geographical areas.

"The marketplace for condominium insurance has been extremely tight for the last three years," says Jim Mahood of HUB International a/o Gifford Associates in Nepean, Ontario.

"While the claims rate has remained stable over the past few years," continues Mahood, "the catastrophic potential of these types of risks has led to an exodus of insurers from this line of business, resulting in a substantial increase in rates combined with reduced capacity. Just recently the premiums have begun to stabilize, in some cases fall, as the combination of higher rates and fewer claims has started to improve the outlook of this class of business."

Mahood says that just as marketplace stability seems to be on the increase, the future is becoming somewhat uncertain because of the latest series of weather losses. The rate of claims appears to be rising as the premium levels are flattening out or reducing, thus calling to question the profitability of this class.

"Our expectations are that the rates will stabilize once the full extent of the weather losses is known, but we do not see any major push by insurers to expand their writings in this line of business."

Overall, property drove the market to be hard a few years back but it has softened in the last few months. Only the final bottom-line tab from the recent storms that hit Florida as well as the East Coast will answer the question as to where property rates will settle.

According to Richard Eichhorn, CPCU, ARM, president of International Placement Services in St Louis, "The trends in the insurance marketplace for apartments and condos have gone through many changes in the past four years."

Eichhorn says that in the beginning of 2000, the standard carriers started non-renewing those risks that had two or more claims in the previous three years. At the same time, they also began underwriting more stringently and nonrenewing accounts in wind/tornado areas. This was seen particularly in Florida, Oklahoma, and Kansas. The direct writers also began enforcing more stringent underwriting guidelines and also limiting the number of new polices that their sales force could issue.

Eichhorn points out, "As a result of the above, the business began to float to the excess & surplus lines market. The previous combined rates for property and liability went from an average of $0.25 per $100 of values to $0.75 per $100 of values. Frame risks pricing was even higher if you could find a carrier to accept the risk."

Eichhorn says that beginning in the last quarter of 2003, the rates in the E&S market started to drop to around $0.50 per $100 of values. Since July 1, 2004, both independent agent carriers and direct writers began coming back into the marketplace and accounts are going back to where they where in 2000. There appears to be plenty of capacity, Eichhorn reports.

Most likely, we will have to wait into the first quarter of 2005 to have these answers. ("Film in April!")

The Insurance Marketplace for 2005, which will be distributed with the December issue of Rough Notes, will include among seven new categories: Luxury Homes, Condominiums, or Town Homes in excess of $500,000.

Future Specialty Lines articles will include Preview of the 2005 Specialty Lines Market in December, Contractors in January, and Watercraft in February.

The following have responded to our survey and have indicated that they are markets for Apartments and/or Condominium risks.

Aon Specialty Product Network

200 E. Randolph St., 18th Fl.

Chicago, IL 60601

Contact: Call toll-free number for name of appropriate provider

Phone: (877) 275-2776

Fax: (312) 381-6211

E-mail: moreinfo@askaspn.com

Web site: www.askaspn.com

Aon Specialty Product Network represents carriers, MGAs, program administrators and E&S brokers in all states. Target classes are nonprofit community associations, condominium associations, cooperatives, homeowners, timeshares, and all types of apartments. Can offer D&O, umbrellas, fidelity & crime, E&O for property managers, and property/casualty for apartments. Various A rated or better carriers are used to place coverage.