The softening in the builders risk market over the last few years not only showed no sign of a turnaround in 2007 but has expanded into catastrophe-prone areas as well—particularly along the Gulf and East Coasts, despite hurricane concerns—as pressure builds for top-line growth and new capacity is being poured in, leading players in this niche warn.
The softening market came back “with more of a vengeance in 2007,” according to Rick Girden, managing director of the property construction practice at Mercator Risk Services, which is a national wholesale insurance broker.
He explained that “based on how insurers did in 2006, they all had very, very lofty budgets for 2007, and very few markets even came close to meeting their budgets, so there’s pressure for the top-line growth.” This pressure, Mr. Girden said, is coming from stockholders, senior management and those putting up investment capital.
In addition, pressure is coming from outside as well as within, as Mr. Girden noted that, for the first time in awhile, companies that have usually stayed away from construction risks have hired new people to write this business.
He added that, not only have new companies come into the market, but existing companies have expanded their current writings.
“There are a number of markets that have doubled or tripled their capacity this year just to take a larger share of the exposure—a larger share of the risk,” said Mr. Girden. “So we’ve seen a significant change in the standard markets.”
One change that separates 2007 from other recent years is the softening in catastrophe areas at risk for hurricanes, “which, up until about three months ago, had maintained a fairly hard approach,” according to Mr. Girden.
Similar to the coastal homeowners market, the industry began to reevaluate its exposure for construction risks after Hurricane Katrina and the other major storms of 2004 and 2005.
But unlike the homeowners market, capital is returning after two quiet hurricane seasons. “In the last month, there’s over $500 million in new capacity coming into the marketplace,” said Mr. Girden.
The same phenomenon is being seen in builders risk for inland marine exposures, according to Bill Muir, marine vice president and national inland marine director at RLI. He said that Florida and the Gulf Coast are still the toughest areas to write business. But, like Mr. Girden, he said the market there is softening as well.