broker and insurer community. Continuing low interest rates and even .... and access to real time information anywhere i
MARKET UPDATE EUROPEAN REAL ESTATE BULLETIN DECEMBER 2016
An overview of the real estate insurance market 2016 As we come towards the end of 2016, investment in the UK real estate sector from various sources and the softening of insurance market rates continues at a pace.
Continuing low interest rates and even the emergence of negative interest rates in conjunction with unforeseen political events, is again causing a fluctuation in global stock markets. It is no surprise then that insurer’s investment returns on premium income continues to reduce.
In 2016 we have seen: • The implementation of the Insurance Act, with a wide and varied response from the insurance market has to
to likely further Insurer consolidation into 2017 and beyond • Increasing pressure from occupiers on
how this should be implemented into
recharges from landlords and greater
Policy Wordings
scrutiny from property consultants
• The increase in Insurance Premium Despite this, aggressive underwriting, expansion of existing underwriting teams and new entrants into the sector continue to drive pricing to lower levels and we expect this to continue unabated into 2017, with some carriers in the London market budgeting for a combined operating ratio of 100% or above.
costs and improve margins leading
Tax (IPT) to 10% • Continuation of Flood Re and it’s wider usage particularly in the private dwelling/residential market • A number of insurer mergers and acquisitions with what we expect to be continued pressure to minimise
benchmarking recoverable premiums being requested • Continued lender scrutiny on not only adequacy of policy coverage to assets insured but also wider undertakings being requested to the favour of the lender from both the broker and insurer community
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EUROPEAN REAL ESTATE BULLETIN | Market Update | December 2016
• Increase in boutique insurance
most importantly for well managed core
Turning to Brexit, like all industry sectors,
products such as warranty and
assets, a continued pressure on rates
the insurance market is looking carefully
indemnity, tax liability, legal indemnity
being charged.
at the potential consequences of the
and rights to light to help smooth transactions in both the acquisition and disposal of portfolios and special-purchase vehicles • The development of financial insurance products within the private rented sector (PRS) to provide an indemnity in unbudgeted lifecycle costs • Increasing use of Lloyds of London
We would expect there to be pressure on the insurer community to rationalize their approach to the implementation of the Insurance Act, the Fair Representation of Risk as well as a more uniform approach to the issue of Proportional Remedy.
structures with consideration of hubs for European placements outside of the UK. Such a move, should it be required to avoid tariffs on London placements
up, attractive rates are becoming
London’s global influence in the
more and more available for previously
insurance sector.
unfashionable occupancy types such as
UK terrorism exposures.
student accommodation. The chase for premium is generating interest from markets where it did not exist historically.
Looking towards 2017, we expect there
The insurance market is
to be a continuation of new insurance
looking carefully at the potential
announced hike of IPT to 12% (where
consequences of triggering
the UK is still significantly lower than a
Article 50
number of European territories) and
markets are reviewing their underwriting
into Europe could significantly weaken
waste, leisure including nightclubs and
products as well as the recently
effect on ‘Passporting’. A number of
As competition between insurers hots
as a viable alternative to Pool Re for
MORE OF THE SAME FOR 2017?
triggering of Article 50, in particular the
It is certainly possible that premiums required in London could reduce still further to accommodate any applicable tariffs to ensure retention of an Insurer’s Gross Written Premium, with the consequent issues of degrading Insurer profitability even further. We have yet to see whether the US election result will also result in a more aggressive isolationist view on external markets, including the Insurance sector.
RESIDENTIAL FOCUS The Residential Real Estate market has also seen a number of changes this year. In the autumn statement the Chancellor put a ban on letting agent fees, in a move that would be seen to assist renters.
www.jltspecialty.com | Market Update
hailed as the answer to the housing
Insurers continue to seek out new
shortage. Developers are seeing the
opportunities and niche areas to work
benefits of building PRS, where the
in which increases the importance of
sale of a block to investors can both
a specialist broking department that
de-risk and bring forward latter phases.
understands the market and
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product variations.
The impact this will have on landlords
RISK MANAGEMENT
The mergers and acquisition (M&A)
and rent will not be clear till the New
Insurers continue to reward a proactive
insurance market has seen significant
Year, with some suggesting landlords
approach to risk mitigation with reduced
growth over the last few years in both
may pass costs associated on to the
rates, and recent changes to the eligibility
the available capacity and number of
tenants via rent.
criteria means that even more options
insurers providing cover. Several of the
are available. This will allow property
insurers have focused on the Real Estate
owners to claim Enhanced Capital
sector and paid particular attention to
allowances against the installation of
how the policies can be structured better
supporting technologies, including the
to meet the needs of clients. This has led
whole suite of products from suppliers
to very competitive premium levels and
such as LeakSafe. Tax on these products
reductions in policy deductibles, in some
is offset against profits creating further
cases, a nil policy deductible is possible.
incentive to invest in this area.
We have also noticed a stark rise in
This was followed by the positive news that a policy change will give the rental market its own affordable housing classification in London. The move is expected to unlock thousands of rental homes across the capital and see billions in investment enter the sector. It will provide official direction that rental schemes do not need the
the use of M&A tax insurance policies in real estate deals to provide greater
to sell schemes. This could see more
TRANSACTIONAL INSURANCE
institutional investment being made into
With the continual rise in use of legal
the sector.
indemnity insurance we have seen
Tax liabilities).
The PRS sector has overtaken social
increased innovation and competition
We expect that these trends will continue
with insurers. Additional capacity has
and further spread to the southern
entered the market leading to a further
European countries as well as Central
reduction in premium rates.
and Eastern Europe.
same affordable requirements as build
housing as the UK’s second largest tenure and build-to-rent and is being
certainty over particular tax liabilities (for example residency/Stamp Duty Land
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EUROPEAN REAL ESTATE BULLETIN | Market Update | December 2016
JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies. Our success comes from focusing on sectors where we know we can make the greatest difference – using insight, intelligence and imagination to provide expert advice and robust – often unique – solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. Our Real Estate division has a wealth of experience, recognised within both the insurance market and real estate sector. The team specialises in the placement and management of real estate focused solutions utilising market leading IT platforms that are web based and allow control of the programme and access to real time information anywhere in the world.
CONTACTS Nigel Todd Head of European Real Estate JLT Specialty +44 20 7558 3549
[email protected]
JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com
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This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
