Excess, surplus market seeing more insurance submissions

PALM DESERT, California — The excess and surplus lines market is seeing a strong flow of insurance submissions as standard markets cut back on coverage, said attendees at the Wholesale & Specialty Insurance Association’s underwriting summit earlier this week.

Company officials said hardening within the sector has been inconsistent, however, with pockets of significant rate hikes and other areas of much more modest hikes.

They state they expect the hardening market to continue at least through this year if not longer.

Meanwhile, officials say they anticipate the E&S industry will respond to the coverage challenges presented by the coronavirus. Ironshore Inc., a unit of Liberty Mutual Insurance Co., has already added a coronavirus endorsement to its hospital professional liability policies.

Segments of the market both on the property and casualty side are having capacity issues “which is driving rates up significantly,” said Tom Jurgens, Scottsdale, Arizona-based senior vice president at Nationwide E&S Specialty.

“We’re seeing a big influx of standard market business in those two spaces that is flowing over to the E&S side,” he said. Mr. Jurgens said in some cases standard line markets that once insured whole lines are breaking up the lines and insuring part of the risk in the wholesale market.

There is wide disparity in rate hikes in the E&S market, he said, however. “You’re seeing various segments in the excess space with significant prices, and others that are seeing simply nominal rate increases.”

Bryan Sanders, president, Markel Specialty, a unit of Glen Allen, Virginia-based Markel Corp., who assumed WSIA’s presidency during the summit, said, “It’s not in all lines of business, in all parts of the country, but it’s rate increases that have been persistent now for really probably a solid nine to 12 months.” 

Mr. Sanders said pockets he would consider hard include New York construction, public directors and officers liability, and property in the Southeast.

Eric Blecker, Hartford, Connecticut-based president of Northfield, a unit of Travelers Cos. Inc., said, “There are pockets that are a little more distressed than others, including property catastrophe and habitational-type risks, while some small mainstream accounts are not quite as challenged as far as finding a landing spot.”

“The carriers are looking for the rate as much as they can get, limits are being reduced, exposures are being reduced,” said Ryan Armijo, Charlotte, North Carolina-based chief operating officer, underwriting, for AmWINS Group Inc. “I think ‘stress’ is probably a good word” to describe the market, he said.

“The joke is, $10 million is the new $25 million,” said Mike Brennan, Chicago-based president, commercial solutions, for the CRC Group.

“I see rates moving upward in a hurry, particularly in the umbrella and liability space,” said Ben Johnson, Dallas-based senior vice president, wholesale distribution for Ironshore Inc., a unit of Liberty Mutual Insurance Co.

Coastal wind risks “as well as most classes of property continue to see rate increases and capacity scarcity,” said John Edack, San Francisco-based senior vice president of Arch Insurance Co.

In addition, “we’re seeing more tightening” in all size risks for primary casualty. While previously, mid-to-larger size risks were being hit with price increases, this is occurring “now even in the smaller space,” said Mr. Edack.

In umbrella, there has “been a significant restriction in capacity,” and prices are tightening, he said. Although capacity is still available, insurers are employing stricter limits management, according to Mr. Edack. 

However, despite the California wildfire and its impact on personal lines, “our results in commercial have remained very good,” said Harvey W. Goldenberg, San Francisco-based executive vice president and managing director for Burns & Wilcox Ltd.

“The commercial claims activity was nowhere near what happened in personal lines,” he said. Perhaps the spread of affected businesses was comparably much wider, “but we suffered very little, if any, commercial losses during the wildfires.”

John L. Woods, vice president, national transportation practice and group leader for Burns & Wilcox in Scottsdale, Arizona, said the transportation market “is really a continuation of the same market that’s been in existence since probably 2010, 2011.”

Those still writing it “have become much more restrictive in the types of business that they write and much more focused on specific areas within the transportation world that they want to write.”

Mr. Armijo said the hard market will last at least through this year.  “The carriers are making up for many years” of inadequate rates, perhaps because of a lack of discipline, and “it will take a while to capture that back,” he said.

Mr. Sanders said, “This feels like something that is going to sustain itself throughout 2020 and into 2021. We don’t see any signs of that dissipating.”

Give prior year reserve releases and that “many carriers don’t feel like they’ve still gotten to the right place from a rate perspective, we could have this lasting significantly into 2021,” said Mr. Brennan.

“We think this one could go longer than hard markets in the past,” said Mr. Goldenberg. In the more recent hard markets, there seems to have been a quick uptick, then a leveling off of rates.

“We believe this market will have a gradual increase, and last for a couple of years” because results both in London and domestically “have been significantly impaired, and the carriers need to boost reserves and surplus.”

Mr. Johnson said, “In the liability lines, it’s here for an extended period of time. The problems driving the market aren’t things that are easily solved. I know in our portfolio we need significant, sustained corrective action on the books to get our underwriting profit to a sustainable level that’s acceptable. If I had to guess, I would say, two to three years.”

In property, while “if there is a hurricane season, all bets are off,” rates will go down if the year is profitable, he said.

The coronavirus was also a topic of conversation, with some predicting the E&S industry will respond to the risks it presents. The virus “presents an opportunity for us to innovate and develop the kinds of products that respond to what our clients need,” said Mr. Brennan.

“We’re in a position to respond, for sure,” said Jacque Schaendorf, president and CEO of Insurance House Inc., a Marietta, Georgia-based managing general agent. “That’s what we do for a living, come up with coverage.”

Mr. Johnson said Ironshore has added a coronavirus expense reimbursement coverage to its hospital professional liability policies.

According to Ironshore’s product sheet, coverage responds to Centers for Disease Control-confirmed “Coronavirus Events” and will provide reimbursement for eligible expenses resulting from the purchase of specialized equipment, disinfection, notification to potentially affected persons and public relations. 

In addition, Liberty Mutual’s Healthcare Excess Workers Compensation policies may include a communicable disease event aggregate and a crisis management expense reimbursement cover, according to the product sheet.

It said compensability under works comp is determined by each state. It said on property policies, it also offers health care providers infectious disease business interruption coverage and clean up expense, and policyholders should refer to their policy for coverage terms.

It could not immediately be learned how much coverage is being offered.