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Judy Greenwald

High capacity drives continued soft market in excess and surplus lines

March 16, 2014 - 6:00am


SCOTTSDALE, Ariz. — A continued soft market, particularly in property lines, driven by an overabundance of capacity is expected to continue for the foreseeable future.

Also expected to continue is ongoing consolidation in the excess and surplus lines market.

The significant amount of capacity is “probably the most dominant issue that exists in the market right now,” said Davis D. Moore, Los Angeles-based chairman and CEO of Worldwide Facilities Inc.

When insurers are asked how much growth they anticipate from rates in 2014, their responses range “anywhere from not seeing rate increases to seeing things in the low single digits,” said Ronald S. Austin, Worldwide president and chief operating officer.

“We're not seeing rate slides, but we're not seeing any real hardening in any one particular area,” said NAPSLO President Kevin Westrope, who is Kansas City, Mo.-based managing director of R-T Specialty Group L.L.C. He was speaking during the National Association of Professional Surplus Lines Offices Ltd.'s 2014 Mid-Year Leadership Forum earlier this month in Scottsdale, Ariz.

“There continue to be discussions about pricing and rate deterioration in the property market,” however, with price declines of about 5% to 10% depending upon the specifics of the account, said James Drinkwater, New York-based president of AmWINS Brokerage, a division of AmWINS Group Inc.

“On the property insurance side, the E&S market is very competitive and getting more competitive,” said Evan D. Bull, New York-based national property practice leader for Burns & Wilcox Brokerage, a unit of Burns & Wilcox Ltd. that was formed last year.

However, in the rest of the market, “exposure bases are going up, so premiums are up,” said Denis Brady, Burns & Wilcox Brokerage's San-Francisco-based president.

Alan J. Kaufman, Farmington Hills, Mich.-based chairman, president and chief executive officer of H.W. Kaufman Financial Group and Burns & Wilcox Ltd. said while overcapacity is a problem, business is good because “some of the standard companies have pulled back their writings in certain classes of business that they had stepped into that were traditionally gray areas,” which may have been written by the E&S market in the past. This is creating “more opportunities for a lot of us in the E&S business,” he said.

“The market still has not given us what we think of as a true hard market, but we're clearly seeing pockets of business where admitted markets are pulling back, so E&S companies have begun to poke around and try to get more rate,” but this is “very spotty, very geographic specific,” said Letha E. Heaton, vice president of marketing at Mount Laurel, N.J.-based Admiral Insurance Co.

“I don't see a lot of change taking place” in the market, said Bryan Salvatore, New York-based president of specialty products for Zurich North America Commercial. However, he added, “One of the great things” he has found is the market's discipline. “I don't see as much volatility in the pricing as we have seen in the past,” he said.

The current situation will continue, said Mr. Drinkwater. “There's plenty of capital in the market,” he said. “I'm not sure there's going to be any type of hardening any time soon.”

“The key to the market in 2014 is going to be underwriting discipline,” Mr. Davis said. “All of our underwriters have been charged with not cutting rates, but at the same time growing their books, so it's going to be more of a challenge in 2014 than it was in 2013.”

Unless there is a major catastrophe, “the market will become a lot more competitive for the remainder of 2014 and going into 2015,” said Mr. Bull

Consolidation is expected to continue as well. “I do think consolidation is going to continue,” said Mr. Westrope, whose firm, Kansas City, Mo.-based Westrope, a wholesaler, merged with R-T last year. “More and more in this industry, scale will matter.”

However, said Mr. Davis, there is “an abundant supply of buyers and not an abundant supply of sellers.”

 



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