London Direct and Facultative Market Affected by Harvey

Hurricane Harvey has caused significant exposure for those owning habitational accounts in London’s direct and facultative (“D&F”) market. Habitational coverage insures commercial residential properties, and each habitational account could cover hundreds of properties. Before Hurricane Harvey, many underwriters believed Texas habitational premiums were underpriced, which in turn led to reinsurers overpaying for Texas habitational accounts. In connection with these improperly-priced risks, Harvey likely will cause London’s D&F market to experience rate reductions. Long-term, however, the overall D&F market is unlikely to change significantly.