The excess and surplus lines market is favoring buyers as abundant capacity and competition are resulting in rate declines, with the extent depending on the line of business.

Despite some encroachment of standard-market insurers into the E&S space due to softer pricing in the admitted markets, experts say E&S underwriters are holding on to their turf with pricing that is matched to the risk.

Cyber liability coverage, while not new, is the “hottest” coverage in the E&S space, with buyer interest growing, experts say.

“It's competitive, but I don't think it's accurate to characterize it in a broad-based way because if you look at the E&S property space, it's quite competitive right now,” said Bryan Salvatore, New York-based president of specialty products at Zurich North America Commercial.

For cyber coverage, most insurers “are really managing” their terms, attachment points and limits, he said.

Rates fell dramatically in the first quarter but not as much in the second quarter, and “we've seen slowing in the rate decline, but I still feel the market is highly competitive and there are still price reductions to be had, depending on the class of business,” said James Drinkwater, property/casualty brokerage division president of AmWINS Group Inc. in New York.

Business is “choppy,” said Christopher J. Cavallaro, managing director at Jericho, New York-based wholesaler ARC Excess & Surplus L.L.C. Some lines are highly competitive, including public directors and officers liability coverage. Less competitive lines include contractor's coverage in the New York area and private company D&O, he said.

“If you're talking about lawyer's professional liability, you're probably seeing rates relatively flat to slightly up,” while there has been continued deterioration in wind-exposed property, though it depends on the construction type and age, said Randall G. Goss, chairman and CEO of Dallas-based wholesaler U.S. Risk Insurance Group Inc.

“There is substantial competition in the marketplace, but as a rule we see well-considered pricing,” Mr. Goss said.

“Accounts that have a challenging loss experience or exposures are still being charged rates that are commensurate with the exposure,” said F. Marshall Turner II, president and CEO of Alpharetta, Georgia-based insurer Maxum Indemnity Co. “If the accounts are loss-free, there's increasing competition” but it is “disciplined competition, so we're not seeing significant rate reductions there.”

“Companies that might feel like they need to get aggressive on rates don't have a lot of room to operate because the investment income is still fairly low,” which should help maintain rate discipline, said Michael D. Miller, president and chief operating office at Scottsdale Insurance Co. in Scottsdale, Arizona.

“There's a little bit of encroachment (of admitted insurers into the E&S market), but nothing significant,” said Timothy W. Turner, Chicago-based president and CEO of R-T Specialty L.L.C., a division of Ryan Specialty Group L.L.C.

While there's been significant encroachment over the last 10 years, “In the last six months, there's been no change, in my view,” said Mr. Goss.”

Observers say it is too early to determine the impact that the mergers of Ace Ltd. and Chubb Corp. and XL Group P.L.C. and Catlin Group Ltd. will have on the market.

“I'm not sure how much this signals a major change in the E&S market,” but the insurers have been major players and it will be “interesting to watch” as they consolidate and gain the benefits of scale, said Patrick Donnelly, president and deputy CEO of JLT Specialty Insurance Services in Chicago.

Citing Validus Holdings Ltd.'s acquisition of specialty lines insurer Western World Insurance Group Inc. last October and Tokio Marine Holdings Inc.'s plan to acquire specialty insurer HCC Holdings Inc., “there might be more M&A activity down the road,” said Henry Witmer, assistant vice president at Oldwick, New Jersey-based A.M. Best Co. Inc.

Adding to the competition is the alternative capital market, particularly concerning property catastrophe coverage, said Bryan Sanders, president of Glen Allen, Virginia-based wholesale broker Markel Corp. “They're certainly looking for different ways and different channels to deploy that capital” and “it's certainly increased the competitive atmosphere.”

The alternative capital “is around the fringes” of the E&S market, said Bruce Kessler, Alpharetta, Georgia-based division president of Ace Westchester Surplus Lines Insurance Co. “The business is plenty competitive on its own without alternative capital.”

“With the abundance of capacity and the absence of any cat losses, I see more of the same,” Mr. Drinkwater said of the near future in the E&S market.

Barring a major catastrophe loss, “I think it's going to remain very competitive,” Mr. Sanders said.