Bullish E&S/Specialty Insurers Expect Growth In A Stable Market For '06

But for 2006, the aggregate growth rate for Lexington's E&S and specialty businesses is in the double digits, according to Mr. Kelly, who listed all segments–property, professional and nonprofessional liability, program business and health care–as growth areas.

"The large majority of what we do is on a nonadmitted basis, but as a group, we should be coming in around $9 billion for the year 2006," he said.

While Mr. Kelly didn't share individual growth figures for different segments, he did say that because of the state of the property market–and Lexington's capabilities within that market–property growth outpaced other areas. "It's not just rate. It's getting [more] business," he added.

In June, Lexington announced increased capacity (available limits) for commercial domestic property insurance of $250 million. Mr. Kelly explained that for insureds with catastrophe and noncatastrophe exposures, Lexington would sublimit the catastrophe piece at $10 million or $25 million, "but if their portfolios have noncat, too, they then have the ability of one-stop shopping for up to $250 million."

In August, AIG formed Concord Re Ltd., a sidecar that accepts a quota-share of Lexington's U.S. commercial property business. "In the cat market, there's still a major shortage of supply versus demand. We've been able to meet a lot of the need, but there was still more than we were able to do," he said.

He added that the sidecar allows Lexington to offer more catastrophe capacity to current clients, as well as to serve additional clients.

Lexington is also continually involved in new product development. "It's a part of our culture," Mr. Kelly said. He noted, for example, that after talking to clients that had losses related to hurricanes last year, "one of the things that resonated…was the extra expense of evacuation exposure," giving rise to a new coverage. (For more on evacuation response coverage, see NU, Sept 11, page 12.)

"Philosophically, that's how we go about it–by listening to clients [and] brokers, and looking at trends with regard to society," he said. "Expect more out of us."

At Swiss Re's Commercial Insurance, listening to customers has meant hearing positive messages about the merger of Swiss Re and GE Insurance Solutions, spurring ambitious growth goals, according to Robin Sterneck, head of commercial insurance.

"We were pleasantly surprised by how positive customers were. Like us, they were fatigued with the unknown [prior to the merger]," she said, noting that the only questions wholesalers asked were: "'Will you keep writing these lines, and can you write more?' We just didn't know."

The answers are now clear, she said, noting that Swiss Re Commercial has an "exciting growth story" ahead, and every one of its eight units has a growth target.

"We're looking at low double-digit growth on the portfolio next year from multiple sources. The two areas we're probably looking at the most are E&S and professional liability," she said, noting that plans call for writing $100 million in E&S and $300 million in professional.

Of interest to NAPSLO members is the smaller E&S segment, which Swiss Re writes through wholesale brokers and refers to as the "individual risk" operation. The headline news with respect to E&S is that Swiss Re is looking to expand its E&S book to include property.

"Isn't everybody?" Ms. Sterneck said, rhetorically. "I don't want to make that sound too unique. My point is that on the nonadmitted side, we've been just a casualty player. Here's an opportunity with a strong parent"–one with experience in natural catastrophe and noncatastrophe–"to diversify," she added.

"What's important about the E&S business is to have an accordion mindset," she said. "You have to be prepared to scale up when the markets are right, and while you want to drive for consistency, you have to be nimble to be effective."

Executives here said growth plans are being devised for each of eight commercial businesses, including professional liability (placed largely through retailers), where they described plans to expand beyond agents and lawyers E&O that the company now writes–and within those niches, also.

For example, William Marko, marketing manager, said the company meets the needs of 70 percent of the agent population through a relationship with the Independent Insurance Agents and Brokers of America. "We just launched a second tier of paper to stretch our strike zone" to meet the needs of 90 percent of agents, he said.

The expanded risk appetite may include newer agencies, or agencies involved in placing more challenging lines–such as long-haul trucking. "We might not have liked that in the past. Now we can write a great variety of businesses," he said.

At Liberty Insurance Underwriters, executives told their growth story with reference to new offices. Denise Morris, senior vice president for the excess liability/umbrella division, said her unit opened an office in Los Angeles this year.

Scott Bayer, senior vice president for general liability, confirmed that the primary division is accepting resumes to add staff there also–perhaps as early as the fourth quarter–after the successful launch of an office in San Francisco two years ago. LIU is seeking someone with a Los Angeles E&S presence and long-standing reputation with clients. "We're looking for someone to provide an instant impact."

Both executives said the next state on the radar screen is Texas, where an office will be put in place in the fourth quarter or early in 2007. Mr. Bayer said E&S opportunities abound in the two states–which are the two largest for surplus lines in the country.

He added that while LIU has had a lot of success with commercial construction on the West Coast, it will look to diversify its California book to include product liability and premises liability classes it typically writes across the country, as well as to expand into areas such as entertainment business or oil and gas. "We're not sitting back on our heels," he said.

As new offices open, "we work with predominately the same wholesalers," he said. "Even though we have relationships with them from New York, Boston and other offices, when you're in their backyard, you see many more accounts than you would when you're 3,000 miles away."