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Excess and surplus lines market stabilizes on growing economy, rising demand

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Excess and surplus lines market stabilizes on growing economy, rising demand

SAN DIEGO — Excess and surplus lines insurers are enjoying a respite in a turbulent marketplace as a growing economy and rising demand for their services balance the market's increased competitiveness.

Several E&S insurer executives say this year's market is showing increased price stability.

One stabilizing factor has been the retreat of standard lines insurers from writing business normally written by E&S insurers in the wake of large catastrophe losses, said Alan J. Kaufman, chairman, president and CEO of Farmington Hills, Mich.-based Burns & Wilcox Ltd.

“There's more business for specialty lines insurers as the big standard lines insurers pull back from the market,” Mr. Kaufman said. “This is business they probably shouldn't have written in the first place.”

Mario Vitale, New York-based CEO of Aspen Insurance Holdings Ltd. and president of Aspen U.S. Insurance, agreed that E&S insurers have prospered as standard lines insurers have retreated.

“We've seen discipline return to the market,” Mr. Vitale said during an interview at the National Association of Professional Surplus Lines Offices Ltd.'s annual conference in San Diego last week. “This has allowed the specialty writers like us to use the tools and training that our people have to manage these risks more effectively, efficiently and creatively.”

Mr. Vitale also said macroeconomic conditions are becoming more conducive to growth. “Although insurers like to complain, there's pretty good balance in the market; and the economy, though not stellar, is improving,” he said. “We've also seen modest but continued rate increases in this space, as well as the tightening of terms and conditions, which has ultimately led to a pretty good market.”

Mark Bernacki, London-based head of the property group for Beazley P.L.C., said another factor helping E&S insurers is greater competition in the reinsurance marketplace.

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“The savings we have seen on our reinsurance program will ultimately bleed through to the insurance market,” Mr. Bernacki said.

Nonetheless, he said prices may decline in certain lines of business in the coming year.

“As I look ahead to next year in our large lines business out of London, I think we are going to be giving up rate — maybe negative 5% or even negative 10%,” he said. “However, in our mid-market and small-market businesses, it will be 1% or 2% increases or maybe flat.”

Berkshire Hathaway Inc.'s entrance into the E&S market was the subject of much speculation during the conference.

Mr. Bernacki said he did not expect Berkshire to aggressively undercut prices, but he also said he worries that the E&S industry's recent underwriting discipline is fragile.

“The team that Berkshire hired is not the type of people to do something foolish, but when you hear them speak of a rapid five-year growth plan that would have them matching the size of Lloyd's, you have to wonder,” he said.

“I've always found Berkshire Hathaway to be disciplined underwriters; they are here for the long term,” Mr. Vitale said. “I welcome any competitor that is disciplined and intelligent about how they do business.”

With the prospect of sagging prices and increased competition, E&S insurers are looking to new markets and products to have an advantage.

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Since the E&S market specializes in the most complex and hard-to-place risks, Mr. Kaufman said he sees the industry playing a large role helping customers with cyber risk protection.

At Aspen, Mr. Vitale said the company opened a division in July targeting the surging domestic energy business.

“We've launched a new onshore energy facility, and we are really excited about it because energy production is absolutely booming in the U.S.,” he said. “We have good technical underwriters, claims people and risk engineers ready to be deployed. This will be a good growth engine for us.”

Elsewhere, Liberty International Underwriters, part of Boston-based Liberty Mutual Holding Co. Inc., has launched product recall coverage tailored to the packaging industry.

“We felt that there was a need to do something different and dramatic to cover all the exposures that a packager might need,” said Louis Lubrano, senior vice president for LIU global crisis management. “So we cobbled together a new product from our existing policies that now covers every exposure.”