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Hard property market burdens commercial real estate firms – Insurance Business Canada

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The hard property insurance market is weighing on insureds across the world, with Marsh reporting that average pricing for commercial property risks increased 30% in Q4 of 2019. Within this space, the middle market commercial real estate space – which includes the office and industrial retail sector as opposed to multifamily and habitational real estate – is especially challenged.

“When we look at a middle market commercial real estate firm, 70% of their total cost of risk (that’s insurance premium costs as well as loss costs within the deductible) are in the property sector where they’re insuring their physical assets against catastrophic events like hurricanes and earthquakes as well as floods, fires and attritional losses,” said Jeffrey Alpaugh (pictured), Marsh’s global real estate practice leader. 

Weather-related events and climate change are driving a re-evaluation of historical underwriting as reinsurers look at improving profitability. In turn, some are withdrawing capacity or trying to increase rates in order to meet their profit goals. 

“Natural catastrophe losses in the US, [such as] Hurricane Dorian, as well as globally in Japan with Typhoon Faxai as well as Hagibis have caused capital contraction within the reinsurance market,” Alpaugh told Insurance Business. “One of the things we’ve seen is alternative capital has become a lot more conservative, creating a reduction in supply in their downstream insurance offerings.”

Last year also saw rises in prices while measurable increases arrived on January 01 of this year, when many insurance companies tend to buy reinsurance on a treaty basis for the upcoming 12 months. That set the tone for the commercial property marketplace going in 2020.

“The capacity constraints are affecting every industry, including commercial real estate,” explained Alpaugh, adding that commercial real estate firms are particularly stressed since commercial property loans will require that certain elements of property insurance be in place, including catastrophic coverage for wind, hurricanes or earthquakes, as well as terrorism insurance. 

As if that weren’t enough, insurance mergers and acquisitions have also contributed to some of the capacity reductions, when two insurers have merged and instead of having two lines of available capacity, they may end up having only one line available. Meanwhile, insurers are facing their own pressures in the marketplace that trickle down to the middle market commercial space.

“Many insurance companies are enforcing mandated minimum profitability requirements, meaning, ‘we’re either going to scale back our limits or increase our premium in order to create profitability in this class of business,’” explained Alpaugh. “And if certain clients are having significant loss experiences, that profitability requirement could be happening on an account-specific basis as well.”

Read more: Eight characteristics of a hard insurance market

Some insurers are requiring much more information on insureds’ loss prevention measures and loss data, and scrutinizing that as part of their risk selection process. When it comes to commercial property accounts, they’re asking real estate firms about what types of loss prevention practices they have in place, and are only betting on the accounts with the best risk outlooks.

At the same time, the middle market space is already at a disadvantage because commercial real estate firms don’t have the buying clout of some of the larger companies within their sector to demand specific pricing terms and conditions as well as coverage enhancements. With demographic shifts pushing more commercial property developments into high-hazard areas that tend to be exposed to natural catastrophes, such as coastlines, the threat of CAT losses is high for these firms.

Relief in this hard market might not be right around the corner. Marsh’s Q4 commercial insurance pricing report revealed that this quarter was the ninth consecutive quarter of average price increases and composite pricing increased in all geographic regions for the fifth straight quarter. While the 2019 catastrophic losses were in line with historical averages and carriers are reporting improvements in their financial performances, how much of an impact this will have down the road for pricing in commercial insurance more broadly and property insurance specifically has yet to be determined. 

“Overall in 2020, insurance companies have increased growth goals, [and it] remains to be seen as far as [whether] they expand supply of capacity to some extent, if the pricing hits a level where they see it as attractive,” said Alpaugh.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

The Canadian Press. All rights reserved.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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B.C. voters face atmospheric river with heavy rain, high winds on election day

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VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.

Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.

The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.

Wednesday was the last day for advance voting, which started on Oct. 10.

More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.

Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.

An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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