SD METRO NO.3 VOL XXXIII

NO. 3 VOL. XXXIII

Are Foreign Investors Driving Up Real Estate in Your Neighborhood?

See more on PAGE 10

GIVE DAD THE GIFT OF DONOVAN’S WORLD CLASS SERVICE OPEN 3PM - 9 PM, SUNDAY, JUNE 16, 2013.

2018 | ISSUE 3 Volume XXXIII

Our mission is to always provide quality journalism for our readers by being fair, accurate and ethical and a credible resource for our advertisers.

Chairman | CEO Robert Page BobPage@sandiegometro.com

COV E R STO RY Experts see foreign buyers as a bigger force in the market, and a contributor to the rise in singlefamily rentals California has seen the past 10

years. They’re having a bigger impact than institutional investors. See Page 10

Publisher Rebeca Page RebecaPage@sandiegometro.com Managing Editor Manny Cruz Manny@sandiegometro.com Graphic Designer Christopher Baker cbaker@sandiegometro.com Photography/Illustration David Rottenberg Contributing Writers Jennifer Coburn Tom Shess Eric Breier Randi Crawford Delle Willett

6 Court Stymies City of San Diego’s Plans to Demolish California Theatre

San Diego County Superior Court Judge Joel Wohlfeil has set aside the city of San Diego’s approval of the demolition of the historic California Theatre in a ruling on a lawsuit filed by the Save Our Heritage Organisation (SOHO).

13 Big Plans on Horizon for Mission Valley

While seeing consistent declines in commercial real estate vacancy rates, Mission Valley remains one of the healthiest office markets in all of San Diego County. This can be attributed in part to the stability of the region.

14 2018 Insurance Market Outlook

The market for architects, engineers, lawyers, CPAs and other professionals remains competitive, with a large number of companies vying for preferred accounts. Every policy written for this line is tailored by the insurance company providing the coverage

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Advertising SALES & MARKETING DIRECTOR Rebeca Page

Get in the loop with SD Metro’s Daily Business Report. Sign up for daily emails on the latest business at sandiegometro.com P.O. BOX 3679 RANCHO SANTA FE, CA 92067 858.461.4484 FAX: 858.759.5755

SD METRO magazine is published by REP Publishing, Inc. The entire contents of SD METRO is copyrighted, 2018,

by REP Publishing, Inc. Reproduction in whole or in part is prohibited without prior written consent. All rights reserved. All editorial and advertising inquires can be made by calling or writing to the above. Editorial and ad deadline is the 24th of the month preceding the month of publication. Mail subscriptions of SD METRO are available for $50 a year for addresses within the United States. A PDF version of this issue is available at sandiegometro.com Additional information, including past articles, online-only content and the Daily Business Report can be found at sandiegometro.com. For reprints or plaques of articles published in SD METRO , please call Rebeca Page at 858-461-4484 All real estate advertising in this newspaper is subject to the Fair Housing Act which makes it illegal to advertise “any Preference limitation or discrimination based on race, color, religion, sex, handicap, familial status, or national origin, or an intention, to make any preference, limitation or discrimination. “Familial status includes children under the age of 18 living with parents or legal custodians; pregnant women and people securing custody of children under 18. This magazine will not knowingly accept any advertising for real estate which in in violation of this law. Our readers are hereby informed that all dwellings advertised in this magazine are available on an equal opportunity basis. To complain of discrimination call HUD Toll-Free at 1-800-669-9777. Th Toll-free telephone number for the hearing impaired is 1-800-927-9275.

Read us online: sandiegometro.com

SAN DIEGO SCENE

Rendering of the ‘17th & G’ development (Courtesy of Carrier Johnson + Culture)

Design Approved for ‘17th & G’ Housing Project in East Village Civic San Diego approved the design for “17th & G,” a seven-story (83-foot tall) affordable housing development proposed by Affirmed Housing Group. The project is located at the northeast corner of 17th and G streets in the East Village neighborhood of Downtown.

Eighty-six units will be permanent supportive housing for those at risk of homelessness. The project was designed by Carrier Johnson + Culture and is anticipated to begin construction in March 2019 with occupancy by October 2020, according to the Civic San Diego announcement.

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SAN DIEGO SCENE

Koman Family Outpatient Pavilion Welcomed its First Patients UC San Diego Health welcomed its first patients to the Koman Family Outpatient Pavilion, the new 156,000square-foot, $140 million facility that represents the most recent addition to the

university’s world-class medical campus.

The new outpatient pavilion includes eight surgery suites, basic and advanced imaging, physical therapy and pain management plus infusion and apheresis

services. The services are designed for patients who will be treated in a single day.

Surgeons will offer a range of procedures, such as minimally invasive orthopedic surgery for hand, sports and foot injuries as well as advanced procedures for urinary stones, bladder cancer, breast reconstruction and cosmetic surgery.

Hearing restoration and sinus procedures will be offered, as well as medical devices to treat obesity and gastroesophageal reflux disease. Pain management options, such as image-guided injections, implantable therapies and traditional and alternative medications, will be available, tailored to each patient. The Pavilion is named in honor of Bill and Amy Koman and family, passionate cancer research advocates. It was designed by CO Architects and built by Kitchell Construction. Location: 9400 Campus Point Drive.

Koman Family Outpatient Pavillion

Court Stymies City of San Diego’s Plans to Demolish California Theatre San Diego County Superior Court Judge Joel Wohlfeil has set aside the city of San Diego’s approval of the demolition of the historic California Theatre in a ruling on a lawsuit filed by the Save Our Heritage Organisation (SOHO).

The City Council approved the demolition of the landmark theatre in April 2017, although its Downtown Community Plan mandates that it not be demolished.

The proposed demolition required an environmental impact report (EIR) process because of its inconsistency with the plan and its adverse environmental impacts, according to SOHO.

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The court granted SOHO’s legal petition in full because the EIR for the “1122 4th Avenue Project” failed to comply with the California Environmental Quality act (CEQA) by refusing to analyze even one alternative providing for adaptive reuse of the 1927 theater and its historic Agua Caliente racetrack mural as required by the city’s adopted Downtown Community plan.

The project as approved by the city would allow complete demolition of the theater complex to build a 40-story, 420-foot-tall mixed-use development of 282 residential units and parking along with a street level retail lobby.

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The California Theatre (Photo by Sandé Lollis)

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SAN DIEGO SCENE

Northrop Grumman Celebrates 20th Anniversary of Global Hawk UAV

Northrop Grumman’s Global Hawk

Northrop Grumman Corporation celebrated the 20th anniversary of the first flight of its autonomous Global Hawk high altitude long endurance aircraft. The Global Hawk System remains on duty around the world and is one of the premier providers of persistent intelligence, surveillance and reconnaissance information supporting the United States and its allies.

The first Global Hawk aircraft, named Air Vehicle 1, or AV1, was built by Teledyne Ryan Aeronautical at the Ryan factory near San Diego’s Lindbergh Field. Northrop Grumman would acquire Teledyne Ryan in 1999.

The aircraft was all white, except for its U.S. Air Force markings and sported a unicorn-like mast out of the front of its nose. Ryan pilot Mike Munski, in the ground control station nearby, clicked the take-off button on his control console and AV-1 took off into the desert sky from Edwards Air Force Base.

After a 56 minute flight, the first Global Hawk landed safely and stopped itself on the runway, just six inches off the painted centerline.

The first Global Hawk aircraft were in the Advanced Concept Technology Demonstration program, sponsored by the Defense Advanced Research Projects Agency (DARPA).

DARPA is responsible for the development of emerging technologies for use by the military.

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SAN DIEGO SCENE

Scripps Family Contributes $4.6 Million to Two Scripps Oceanography Projects The University of California San Diego announced charitable gifts from more than a dozen descendants of Edward W. Scripps that will make possible two crucial and high-profile projects at Scripps Institution of Oceanography. The gifts

underscore the family’s commitment to the advance the mission of Scripps Oceanography to find solutions to our greatest environmental challenges.

Included in the projects covered by the $4.6 million in family gifts is the

replacement of the railing on the Ellen Browning Scripps Memorial Pier ($2.6 million), and the reconstruction and modernization of the Center for Coastal Studies ($2 million), which will be named after longtime supporters Charles and Lois “Beano” Scripps. The Miller Hull Partnership is the architect for the reconstruction and modernization of the Center for Coastal Studies.

“The scientific research completed at the Charles and Beano Scripps Center for Coastal Studies and on the Ellen Browning Scripps Memorial Pier is vital to further our understanding of coastal processes,” said Margaret Leinen, vice chancellor of marine sciences at UC San Diego and director of Scripps Oceanography. “We’re very fortunate to have the Scripps family’s continued support of our mission to find solutions to our greatest environmental challenges.”

Rendering courtesy of The Miller Hull Partnership architectural firm).

Scripps Encinitas Launches Robotic Surgery Services Scripps Health has expanded its Minimally Invasive Robotic Surgery Program ton Scripps Memorial Hospital Encinitas, bringing the advances of the da Vinci Surgical System to the North County campus.

The first surgery using the technology at Scripps Encinitas was performed recently on a patient who needed a gynecologic oncology procedure.

“This really is science fiction come to life,” said Adam Fierer, M.D., who is the program’s clinical leader at Scripps Encinitas. “This technology takes us into an entirely new realm of the future of surgery, and it has long-term potential to improve our already high level of surgical quality.”

Robotic surgery offers a minimally invasive alternative to open surgery and improves the patient experience by reducing blood loss, lowering pain, accelerating recovery times and limiting complications. The system also can help to reduce many of the costs associated with open surgery procedures.

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The da Vinci Si Surgical System is now available at Scripps Memorial Hospital Encinitas. (Photo courtesy of Scripps Health)

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COV E R STO RY

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COV E R STO RY

Are Foreign Investors Driving Up Real Estate in Your Neighborhood?

Moderate-income families getting squeezed out Back in 2006, about 10 percent of California single-family homes were purchased in all-cash transactions, according to the real estate data firm ATTOM Data Solutions. A decade later, it’s nearly 25 percent. That means a quarter of California’s extremely tight housing inventory is unlikely to go to moderate-income families who need a mortgage to buy a home.

While all-cash buyers are often treated as a rough proxy for international buyers—the California Association of Realtors estimates they are more than twice as likely to pay in cash as

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By Matt Levin | CALmatters

domestic buyers—in reality they are more varied. Some are rich enough to not need to finance a first (or second or third) home, or simply prefer California real estate to the stock market. Private investment firms snapped up a ton of cheap homes during the foreclosure crisis—at one point more than one in three California homes was being purchased with all-cash. And increasingly older people, or their children, are liquidating assets to make all-cash offers.

But experts came to see foreign buyers as a bigger force in the market, and a contributor to the rise in single-family rentals California has seen the past 10 years.

“My guess would be that it’s flipped and that foreign buyers are now having a bigger impact than institutional investors,” said Daren Blomquist, senior vice president at ATTOM. “They aren’t a huge percentage of buyers, but certainly they are one of the reasons that the California market has bounced back so strongly from the recession.”

So what percentage of California’s housing stock is owned by foreign investors?

Let’s start with this major caveat: Foreign buyer real estate data is not good. California sales deeds don’t require a buyer or seller to disclose citizenship or residency status. So analysts rely on rough proxies for foreign ownership.

The house the Rothenbergs tried to buy is a good example. You can verify that the transaction was all cash, which is a good flag for a foreign buyer. You can verify that the tax address for the buyer is outside California, which is also a good flag. You can see the buyer's surname, but given California's demographic diversity, that's hardly evidence foreign ownership.

But that’s all you can really say. Judging by the records, the owner of the Rothenbergs’ dream house could be a foreign-based investment buyer—or he might just be a wealthy ChineseAmerican who lives outside California and wants to invest in Sacramento real estate. (Attempts to contact the owners and the management company of the property were unsuccessful).

The California Association of Realtors estimates that 3 percent of last year’s purchases went to international buyers. Their data even suggests the share of international buyers has been on a downward trajectory since 2008—but that data relies on a survey of realtors, and could be undercounting.

“For one thing, the survey is conducted in English,” said Oscar Wei, senior economist for the California Association of Realtors.

“So if you have Chinese buyers and Chinese agents, they may not

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C TO RY Y CO O VVEERR SS T OR

necessarily want to participate in a survey written in English.”

The number of Chinese diaspora already settled in areas such as Wei also acknowledges that Realtors may not always know the Orange County and the San Gabriel Valley attract a great deal of citizenship status of their clients, and that the timing of the survey foreign investment because cultural and language similarities make could bias the overall results towards domestic buyers. the purchase process easier.

His rough estimate: 5 to 10 percent of the state’s single-family Much of that money goes towards primary residences— housing stock could be owned by international buyers.

Chinese visa holders living with their family in a U.S. home. But Using data from the real estate data firm ATTOM Data after getting a foothold in California, many recently arrived Solutions, CALmatters created a heat map of all-cash home sales Chinese view residential real estate as an attractive investment for each zip code in California—it’s available at CALmatters.org, strategy—one that was not readily available to them in China, So can we conclude anything reliable about foreign buyers? either because of government policy or exorbitant cost.

We do have a decent grasp on where “The real estate in Beijing and some they’re coming from. other places is really expensive,” says He. The fear of Chinese millionaires “They spend a year here, they buy a gobbling up American homes as just house, they say, “You won’t believe it, it’s another piece in their global investment so cheap here.” portfolio can veer into the cartoonish The National Realtors’ survey found and xenophobic very quickly. As only 40 percent of Chinese foreign recently as 2014, Canadians purchased buyers intend to use their U.S. home as a more U.S. homes than Chinese buyers, primary residence for their recently according to the National Realtors immigrated family. The remainder eyed Association. And while Canadians are it as an investment vehicle, vacation actually more likely to make all-cash home, or for use by a student.

For Your Information: offers, they receive nowhere near the The Chinese government is not fond scrutiny as the Chinese. of letting its citizens’ burgeoning wealth 1. San Diego is the 11th most searched In California, however, Asian buyers wind up in American housing tracts. For city via Internet/social media sites by do dominate: Last year they accounted years they’ve tried to clamp down on Chinese buyers. for 71 percent of California homes sold private investment leaving the country. A 2. Foreign buyers as a whole represent to foreign buyers. That dwarfs the next rule that limited Chinese citizens from only approximately 6 percent of all U.S. closest group of international buyers, taking more than $50,000 outside the home sales and Chinese buyers Latin Americans at 14 percent. country was more rigorously enforced last represent 16 percent of that 6 percent.

No state in the country has attracted year, reducing Chinese home buying here nearly as much attention from Chinese according to some reports.

3. In San Diego, Mexican nationals are buyers as California, site of nearly 40 But He cautions that people “will the largest group of foreign buyers. In percent of all Chinese home purchases figure out ways to get money out of Rancho Santa Fe, 85 percent of recent in the U.S. China. The appetite is always there, it’s buyers were local to SD County.

Why are the Chinese so enamored just a matter of how they get the money 4. Realtors say that buyers who believe with California real estate? First, it’s out.” that the answer to selling their home at important to understand what we mean What can California learn from above market price to foreigners will by “foreign.” Those statistics include Vancouver’s Foreign Buyer Tax? discover that is not the case. It is not recently arrived immigrants, of which The housing market in Vancouver, borne out by market facts.

California has quite a few. There’s Canada resembles many California cities. legitimate debate over whether those Costs for single-family homes and immigrants should be counted as condos have skyrocketed, making the city “foreign.” and its surrounding suburbs among the priciest places to live in Many of the recently arrived Chinese snapping up California North America. properties are holders of EB-5 visas—a U.S. program granting Vancouver homes have also been a favored destination of green cards to foreigners who invest $500,000 in U.S. business. overseas investment, primarily from China. Many residents fretted “The wife and kids are in the U.S., some of the husbands are about the influence of foreign dollars on the city’s limited housing here some of the time and some are not, they have a portion of stock, but although good data was scarce, experts figured foreign their money here and they have a portion of their money in buyers accounted for about 5 percent of home purchases.

China,” says Lin He, a real estate investor and developer who Two years ago, under intense pressure from Vancouver residents, courts Chinese property speculators in places like Newport Beach the British Columbia provincial government began mandating and Irvine. that homebuyers disclose citizenship on sales documents. The data

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COV E R STO RY revealed that in fact, 10 to 15 percent of houses were going to neither Canadian citizens nor permanent residents.

So the provincial government slapped a 15 percent tax on all sales to foreign home buyers. The immediate response was stunning: Within a few months, the price of a single-family property in the greater Vancouver area dropped 20 percent. In contrast, prices in Toronto and other major Canadian cities kept rising—buoyed in part by foreign capital searching for a new market outside Vancouver.

But the impact of the foreign buyer tax on Vancouver’s housing market appears to have waned somewhat. While foreign ownership is down, the price of single family home is about back to where it was before the tax enacted—well beyond reach for many Vancouver families.

That doesn’t mean the tax isn’t making Vancouver home prices slightly more affordable than they otherwise would be, proponents say. It means the tax isn’t singlehandedly making Vancouver home prices affordable “The foreign buyer tax will have helped, and there is zero doubt about that,” says Joshua Gordon, public policy professor at Simon Fraser University and a tax supporter. “Whether it’s a panacea, and it is quite clear that is not a panacea, is a different question.”

Gordon cautions that taxing foreign buyers is not the same thing as taxing foreign money going into local real estate. Foreign investors can use local friends and families to purchase property for them. Or they can channel their money through investment funds or other instruments.

Are foreign buyers driving up prices by keeping homes off the market?

The idea of a foreign buyer tax has been floated in some quarters of California, including Silicon Valley, but has never received significant legislative attention at the state or local level.

That’s partly because without solid data on foreign buyers, it’s tough to gauge how much they might be driving up California prices.

Most economists agree that locales attracting lots of foreign investment—Irvine and the San Gabriel Valley, for example—are seeing prices rise because of an influx of foreign capital. It’s difficult to extrapolate that effect statewide.

Those who argue the effect of foreign buyers on California home prices is overstated often cite the type of homes offshore investors are often interested in: newly constructed houses and higher-priced houses at the top of the market. They also point to ever-rising prices in California neighborhoods that have little appeal to foreign buyers.

“It’s a very limited number of homes,” says He, the Orange County real estate investor. “They may sell faster, but I don’t think it has much impact on price.”

But while the most intense competition from abroad might be for more expensive properties, that demand can still have an impact down-market. Blunt that demand, says Wei, the Realtors’ economist, and “you’d probably see some softening in the higherpriced properties. And that would lead of course to some softening in home prices not just in those areas, but it would

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trigger down to the statewide median price.” But he stresses that average home prices wouldn’t see a major dip.

Despite the focus on foreign buyers demand for listed houses, their effect on the inventory of current houses for sale could be just as important. If foreign buyers are more inclined to buy property as a long-term investment vehicle, they may be less inclined to sell.

“The typical homeowner now stays in their house seven to 10 years,” says Rosanna Garcia, a Sacramento-area agent who specializes in investment properties for foreign buyers. “If you’re looking at a foreign investor, they’ve got the money to wait. The longer you can hold on to it, the more money you can make in the end.”

That means fewer properties on the market, and more to rent.

Garcia stresses that it’s easy to blame foreign buyers for California’s housing market woes, rather than focusing on the lack of new construction or other distortions to the state’s dysfunctional housing market.

And it’s not only foreign buyers who are making all-cash offers like the one that beat out the Rothenbergs. Next we’ll examine the role of private investment firms in our continuing coverage of California’s housing crisis.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California’s policies and politics.

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R E A L E S TAT E

Big Plans on the Horizon for Mission Valley

By Zach Millrood

A look at major projects underway or on drawing board While seeing consistent declines in commercial real estate vacancy rates, Mission Valley remains one of the healthiest office markets in all of San Diego County.

This can be attributed in part to the stability of the region—indeed, the tenant mix in Mission Valley consists of primarily lowvolatility organizations such as business services, real estate, government entities, education, medical systems and government contractors.

Perhaps due to this stability and lack of innovative development, Mission Valley has been neglected for decades. There hasn’t been much excitement generated here in the past 15 years, however several plans are set to change that, with the potential to positively impact the market for decades to come.

Here’s a look at some of the more significant projects that are either underway or are currently on the drawing board: AMP&RSAND The former home of The San Diego Union-Tribune is the planned site of AMP&RSAND, a modern, 330,000 square foot campus stocked with amenities. The two 165,000-square-foot buildings on site include a repositioned five-story office tower (where reporters used to work), and an adjacent three-story building that formerly housed a printing press. A new interior design for the buildings will have an industrial loft feel, including exposed brick, concrete pillars, high ceilings and oversized windows.

There are also plans for a 64,000 square foot outdoor gathering space, an amphitheater for group functions and a central meeting area set under a large Ficus tree planted by former U-T owner Helen Copley. Amenities will include: a fitness studio with spa-quality locker rooms, concierge services, a café and a bike center.

Former Qualcomm Stadium Site There are dueling proposals regarding what to do with the site of the former Qualcomm Stadium (now called the San Diego County Credit Union Stadium) on Friars Road. The proposal for “SoccerCity,” a 168-acre site by FS Investors, calls for 4,800 residential units, 3.1 million square feet of office and retail space, 350 hotel rooms, 55 acres of green space and a 22,000 square foot stadium built for a professional soccer team.

It’s likely that voters will decide in 2018 on how this site will be developed. Backers of a competing plan, “SDSU West,” want to expand San Diego State University’s campus to the location with a mixed-used development that includes facilities for SDSU administrative buildings, classrooms and student housing; commercial, technology and office space; a river park with walking and biking paths or trails; retail space, hotels and a football stadium large enough for SDSU’s football team that could also be adaptable for a professional football or soccer team.

Civita This 230-acre, mixed-use, masterplanned community is already flush with 4,780 units of residences and 60-plus acres of parks and open space. Still to come: a 480,000 square foot retail center and 420,000 square feet of office campus.

Riverwalk Golf Course If plans fall into place, by 2023 the 27hole golf course will be replaced by a $2 billion Riverwalk project with a master-

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planned community of housing, offices, retail shopping and parkland.

Still awaiting San Diego City Council approval, Riverwalk could include 4,000 housing units in mid-rise buildings, one million square feet of office development on 20 acres located at the southeast corner of the site and 80 acres of a park with trails and recreational spaces. Some configuration of 18 holes of golf would also be revitalized. A new trolley stop is also envisioned for east of Via Las Cumbres.

Trolley Extension Speaking of trolley news, the Metropolitan Transit System is well underway on the Mid-Coast Trolley Extension that will add new tracks starting in Old Town and heading north to University City.

Service is scheduled to begin in 2021, and for the first time the business and educational communities of Mission Valley, Downtown and University Town Center will be linked via usable public transportation.

The old fable notes that slow and steady wins the race. And while Mission Valley has been a steady player for some time, the market is currently on its toes and poised to race forward with a number of exciting possibilities.

Zach Millrood is a senior vice president of Hughes Marino. Contact Zach at 1-844-NOCONFLICT or zach@hughesmarino.com. This article was originally published in the Mission Valley News.

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INSURANCE

2018 Insurance Market Outlook The commonwealth’s bondholders shouldn’t expect a bailout

By Jeff Cavignac, James P. Schabarum II, Patrick Casinelli and Matt Noonan Once premiums for property, general liability, auto, workers’ compensation, employee benefits, life insurance and other lines of coverage are added up, it can often total 5 percent or more of a firm’s total revenue — and that is only the direct costs.

This number can more than double once indirect costs are factored in.

With that in mind, it is critical to understand how to proactively manage and forecast these costs. Read on for some perspective on where the insurance industry is today and how current finances and underwriting objectives might affect businesses this year.

The Current Market From 2008 to 2012, the industry’s return on average net worth was poor due to a lousy combined ratio and a low level of investment return. When returns deteriorate like they did during that period, underwriters try to get more rate (increase premiums). In 2013, 2014 and 2015, the industry performed well, but not great.

Insurers earned modest underwriting profits, but decent overall returns. Rates in these years were flat and started trending down. This decrease in pricing adversely affected 2016 results. Insurance companies basically broke even on underwriting (combined ratio of 100.7 percent) and overall returns dropped from 8.4 percent to 6.2 percent—a 26 percent drop.

The first six months of 2017 continued the downward trend. The industry posted a $5.1 billion underwriting loss for the first

six months of 2017 compared to a $2 billion loss in the same period in 2016.

The industry will be further impacted by the catastrophic property losses experienced in the last half of 2017. Floods, hurricanes, earthquakes and wildfires will collectively cost the industry about $100 billion. While property risks exposed to these perils will see increases in 2018, the market as a whole remains in pretty good shape and relatively flat rates are projected.

Professional Liability/Errors & Omissions Insurance The market for architects, engineers, lawyers, CPAs and other professionals remains competitive, with a large number of companies vying for preferred accounts.

Every policy written for this line is tailored by the insurance company providing the coverage. In addition to coverage, the type of risk management resources offered and the quality of the claims handling differs greatly among insurance companies. Moreover, some of the “opportunistic” new players in this market may not be around in five years.

Insurance is not a commodity, and it is imperative that coverage, risk management and claims be considered in addition to price.

Executive Risk Executive risk includes directors and officers liability, employment practices liability and fiduciary liability. The headache from the last economic downturn appears to be waning, and these lines of coverage are reasonably competitive.

Surety Bonding In 2018, the U.S. surety industry will continue to post further growth in overall premiums and below-average loss activity.

The total direct written premium for the calendar year end for 2016 was up to $5.88 billion from $5.62 billion in 2015 (a 4.5 percent increase). Impressively, at the same time the surety industry loss ratio fell in 2016 to 15.5 percent from 18.3 percent the previous year. This high watermark for surety industry volume continued to increase through the second quarter of 2017 to $3.13 billion in revenues, with a 13.6 percent loss ratio (compared to $2.98 billion in revenues with an 18.4 percent loss ratio at the second quarter of 2016.)

Health Insurance A number of “repeal and replace” bills have failed to pass, so the Affordable Care Act will continue to be enforced. Information is still pending on the Cadillac Tax and whether regulations will be implemented.

For 2018, the number of age bands is likely to change. Currently, for small groups (two to 99 employees), most insurance carriers have one rate for children under 20 years old. In 2018, insurance carriers will divide the zero to 20 age group into seven bands: zero to 14, 15, 16, 17, 18, 19 and 20.

As a result, premiums for age 20 and below could see significant increases of 20 percent to 50 percent.

Jeff Cavignac, James Schabarum, Patrick Casinelli and Matt Noonan are principals of Cavignac & Associates, a San Diego-based risk management and commercial insurance brokerage firm. For more information, visit cavignac.com.

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