Property Insurance Market Report United States. Summary and Forecast Q1 14

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1 Property Insurance Market Report United States Summary and Forecast Q1 14

2 Property Summary Property underwriters enjoyed a profitable 2013 due to lower losses and higher rates, which followed two-plus years of increasing property rates. As respects losses, Aon Benfield estimates 2013 catastrophic insured losses to be approximately USD47 billion, compared to the 10-year average of USD61 billion the lowest total since For 2014, despite a severe winter, losses have been about average through the first quarter. Tornado losses, to date, are also lower than average and forecasters are predicting a lower than average Atlantic Hurricane season. Property rates for larger or national accounts experienced lower rates on average by more than 4 percent in Q1 14. In reviewing some recent April renewals, property rates were down by 11 percent for all accounts. Interestingly, single carrier placements, which typically show less upward or downward pressure than shared and layered accounts, were also down significantly at 9 percent on average. Due to historically high industry surplus and overall property capacity oversupply, we expect competition to continue, if not increase going forward, particularly with most large placements being significantly over-subscribed. We also expect some insurer premium budgetary shortages to intensify competition. For the remainder of 2014, we expect property rates to be lower by 5 to 10 percent on average, with more than adequate capacity to meet buyer demand. Category Q1 14 Comment Remainder 2014 Comment 2013 global CATinsured losses have been the lowest since Year-to-date 2014 CAT-insured losses are approximately USD7.0 billion Larger complex accounts experienced approximate average decreases of 4.2 percent in Q1 Rates are expected to sustain downward pressure subject to continued, favorable catastrophic loss activity for 2014 Pricing Larger and more complex accounts experienced an average rate decrease for the quarter of percent. This represents a third straight quarter of decrease for large complex accounts Rates are expected to sustain downward pressure. It is likely there will be somewhat of an intensification in rate decreases in Q2 based on over-supply, significant sign-downs and a lack of Q1 CAT activity Limits Nearly 90 percent of risks purchased the same or higher limits The abundance of supply coupled with the downward pressure on price could make higher limits more attainable in 2014 Deductibles/ Retentions 98 percent of risks purchased the same or lower deductibles/ retentions No change in property coverage and broad property coverage is readily available in the market Expect most buyers to maintain similar deductibles/retentions Coverage Anticipate no change in property coverage. Flood and CBI will continue to be underwritten carefully by most markets ARS US Property Market Report Q

3 Category Q1 14 Comment Remainder 2014 Comment Capacity Most carriers offered similar line sizes Capacity is expected to be more than adequate to meet buyer demand throughout 2014 Losses Global natural disasters in 2013 caused insured losses of USD47 billion, compared to the 10-year average of USD61 billion the lowest total since To date in 2014 there has been USD5.3 billion insured global CAT losses Forecasts for the 2014 hurricane season are 25 percent below the average and 40 percent below the more recent average Pricing Q1 14 marked the third consecutive quarter of decreasing rates for large complex accounts. Rates are expected to sustain downward pressure based on favorable insurer results for 2013 and Q1 14 and record industry surplus. Further downward rate pressure will likely be seen in Q2 and accounts in with large windstorm exposure due to the release of RMS 13. Accounts with poor loss experience will continue to see upward rate pressure. Large complex account rates experience a 4.2 percent decrease Property Quarterly Year-Over-Year Change in Average Rate Q2 12 Q3 12 Q4 12 Q Q2 13 Q3 13 Q4 13 Q Data Source: Aon GRIP SM ARS US Property Market Report Q

4 Limits Almost 90 percent of property insurance buyers purchased the same or higher limits in Q1 14. The abundance of supply coupled with the downward pressure on price could make higher limits more attainable in Majority of insureds maintained limits Property Quarterly Year-Over-Year Change in Limits 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 86.7% 80.0% 76.3% 64.2% 19.4% 15.3% 16.4% 10.0% 10.9% 8.5% 9.1% 3.3% Q2 13 Q3 13 Q4 13 Q1 14 Lower Same Higher Data Source: Aon GRIP SM Deductibles/Retentions Over 95 percent of accounts maintained the same or lower deductibles in Q1 14. There continues to be limited pressure from the majority of markets to change deductibles/retentions. Property Quarterly Year-Over-Year Change in Deductibles/ Retentions 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 95.7% 93.3% 89.6% 90.0% More than 95 percent of accounts had the same or lower deductibles/ retentions 30.0% 20.0% 10.0% 0.0% 7.5% 8.0% 5.0% 2.2% 2.2% 1.7% 3.0% 2.0% Q2 13 Q3 13 Q4 13 Q1 14 Lower Same Higher Data Source: Aon GRIP SM ARS US Property Market Report Q

5 Coverage The majority of Aon clients have maintained comparable terms and conditions to prior policy periods. Underwriters continue to carefully underwrite flood, windstorm and contingent business interruption. Capacity Insurer capital continued to rise in 2013 based on positive results. Some new sources of property capacity also came into the market in 2013 which is likely to increase competition going forward. Capacity will continue to be adequate to meet buyer demand. Forecast We expect lower (-5 to -10 percent) property rates for most Aon clients for the remainder 2014 with large property clients experiencing greater decreases some more significant than the range provided depending on risk profile. New entrants to the property marketplace and low CAT losses, coupled with broadened carrier appetites, will continue to contribute to a competitive property insurance market. We anticipate more than adequate capacity to be available which will keep coverage and retentions/ deductibles stable for the near future. We encourage all clients to develop and maintain detailed risk data to best represent their individual risks to the marketplace, regardless of market trends. Even in a competitive market environment, underwriters are engaged in a more sophisticated analysis than ever before and those accounts with better data will get better market results. No substantive change in property coverage Capacity is expected to be more than adequate to meet buyer demand throughout 2014 Expect majority of accounts will see downward pressure on rates No significant change in limits, deductibles or capacity by property insurers Capacity to remain adequate to meet buyer demand ARS US Property Market Report Q

6 Aon at a Glance Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www. aon.com for more information on Aon and manchesterunited to learn about Aon s global partnership and shirt sponsorship with Manchester United. The Aon Centre for Innovation and Analytics Based in Dublin, Ireland, the Aon Centre for Innovation and Analytics provides Aon colleagues and their clients around the globe fact-based market insights. As the owner of the Aon GRIP, one of the world s largest repositories of risk and insurance placement information, the Centre analyzes Aon s global premium flow to identify innovative new products and to provide Aon brokers insights as to which markets and which carriers provide the best value for clients. About Aon Broking s U.S. Property Practice Aon Broking s U.S. Property Practice is the premier team of property brokerage professionals in the industry, with extensive experience in representing buyers of complex property insurance. We have more than 100 professionals who are experts in all major client-industry segments. In addition to our significant database of client and industry data, we actively utilize our in-house natural catastrophe modeling capabilities and proprietary terrorism modeling to strategize and advise clients. We have an integrated brokerage platform, including London and Bermuda brokers, which eliminates distribution friction and inefficiencies to deliver the best product to our clients. Aon Broking s U.S. Property Practice places more than $2 billion in annual premium and has assisted with claim settlements in excess of $1 billion. Key Contacts Aon Global Risk Insight Platform (Aon GRIP SM ) is the world s leading global repository of global risk and insurance placement information. By providing fact-based insights into Aon s global premium flow, Aon GRIP helps identify the best placement option regardless of size, industry, coverage line or geography. The Web-accessible data produced by Aon GRIP helps Aon brokers evaluate which markets to approach with a placement and which carriers may provide the best value for clients. It also gives Aon brokers a leg up when it comes to negotiations, making sure every conversation is based on the most complete, most current set of facts. Alfred Tobin U.S. Practice Leader Aon Risk Solutions Aon Broking Property [email protected] Richard H.Miller U.S. Chief Broking Officer Aon Risk Solutions Aon Broking Property [email protected] ARS US Property Market Report Q

7 2014 Aon plc. All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation P