New capacity fuels rate relief for some excess-and-surplus lines in US

Excess and surplus (E&S) insurance buyers in the US will see continued price increases in 2022, after several years of rate hikes, but there will be some relief as an influx of capacity in the market brings more competition. Cyber liability and property catastrophe risks remain particularly challenging as insurers reduce limits, according to attendees at the recent Wholesale & Specialty Insurance Association’s (WSIA) Annual Marketplace in San Diego. Uncertainty over 1 January 2022 reinsurance treaty renewals, developing losses from Hurricane Ida, winter storm Uri and the Astroworld music festival tragedy – in addition to emerging risks from wildfire, ransomware losses and the Florida condominium market – are among factors contributing to the overall continued firming, executives said. As first reported in our sister publication Business Insurance, loss-cost trends from so-called social inflation and nuclear verdicts are also showing no signs of abating, as courts reopen out of the pandemic, while rising inflation is adding to insurers’ claims costs, the experts added. Davis Moore, president of the WSIA and vice-chairman at Amwins brokerage in Los Angeles, said the E&S market is growing and submissions are still increasing as the standard market continues to reevaluate its business and rates continue to firm across most lines. “We continue to see markets right-size their capacity at a time when exposures are rising, which creates a little bit of a supply-and-demand challenge,” Moore said. “The good news is we’re seeing new capacity enter the market to fill some of the voids that are being created when carriers reduce their capacity,” he said. Surplus lines premium reported to US surplus lines stamping and services offices totalled $24.04bn in the first half of 2021, up 21.9% from the year-earlier period, the WSIA said in July. Alan Jay Kaufman, chairman, president and CEO of H.W. Kaufman Financial Group, said ongoing losses from catastrophic events due to wind, water and wildfires will continue to drive property rate increases. Insurers have “retrenched, which means they’re holding back capacity or not using capacity to write business, which means the market gets harder,” Kaufman said. “In the casualty area, rates also continue to go up because of jury verdicts. It’s a very difficult environment,” he added. However, except in catastrophe areas, next year’s rate increases will not be “even close” to where they were last year due to the influx of capacity, he said. Reduced limits, price variations Years ago, a broker could put together a large tower, be it property or casualty, with just a handful of insurers, said Joel Cavaness, president of Rolling Meadows, a unit of A J Gallagher. “Today you’re piecing deals together with very small limits, stacking them on top of each other, which takes a lot of time. It also puts compression on pricing where people aren’t getting paid for the capacity they’re providing,” Cavaness said. Pricing increases will continue but not at the levels seen during the past couple of years, he said. Single-digit rate increases for better risks are in order, with some exceptions, he said. Rate increases have decelerated, except in cyber liability due to rising attacks and in fiduciary liability because of excessive fees claims, said Christopher J Cavallaro, executive chairman of wholesaler ARC Excess & Surplus. To some extent, coastal property rates have accelerated, too, he added. “It’s a mixed bag. Not everything is going in the same direction. Rates generally on a blended basis for insurers are going up 7% to 9%, risk to risk,” Cavallaro said. For E&S property underwriters, catastrophic losses from hurricanes, convective storms, wildfires and freezes are hitting hard. It’s been a rough four years, said Ed Mazman, executive vice-president of the US property unit of Ironshore, part of Liberty Mutual. “We’re getting compounded rate increases and still profitability is challenged because of all the different events,” Mazman said. Healthcare, wildfire, SPACs, cyber, excess transportation, certain classes of real estate are among the most challenged areas, said James Drinkwater, president of Amwins’ brokerage division. “There is plenty of capacity out there, it’s just at a price,” Drinkwater said. Insurers are putting out much smaller limits. “It used to be that layers of $25m were the norm. Now it is $10m and oftentimes you have to build a programme with layers of $5m today, in certain more difficult classes,” he said. Casualty rates are still increasing, just not as steeply as they were in the first half of 2021 and in 2020, said Mike Brennan, CEO of CRC Group’s commercial solutions business. “We don’t see any carriers ready to come in and deploy big limits in casualty, especially on lead umbrellas; $15m is still uncommon on specialty business, and $25m is virtually non-existent,” he said. Social inflation is real and the reopening of the courts will continue to generate “significant verdicts”, Brennan said. Excess general liability rate increases are still in the double-digit range, said Daniel Smyrl, executive vice-president of underwriting at Admiral Insurance. “There’s a need for capacity and limits, so people are willing to pay for that on the excess liability side.” Professional liability rate increases, depending on the area, are still close to double digits, he added. From the primary casualty standpoint, the market is still very firm but not as firm as it was last year, said Rebecca Gitig, head of US primary liability at Aspen Insurance. “We’re seeing decelerating rate increases and expect it will remain firm moving forward into 2022, but just at a slower pace,” Gitig said. It’s the same on the excess side, said William McElroy, portfolio director, casualty, at Aspen. “Our global casualty portfolio is up about 15% over last year, which is much less so than was the case in 2020. That’s an indication of how underpriced some of the business was previously,” McElroy said. Aspen writes $25m in excess liability capacity but hasn’t been deploying it very often. “It’s more like $10m max,” said McElroy. Capacity in the E&S excess casualty sector has reduced in the last few years, said Adrien Robinson, head of global specialty at Hartford Financial Services. “We’ve always judiciously limited capacity grants and attachment. There is new opportunistic capital coming into the space that will bring additional capacity to the sector,” Robinson said. But the cyber market is “extraordinarily hard” and prices are going up anywhere from 60% to 100%, Cavallaro said. For further news from Business Insurance, please click here.

New capacity fuels rate relief for some excess-and-surplus lines in US

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