In Select Lines, Risks Shifting to E&S Carriers

After suffering some unexpectedly substantial losses, P&C standard-lines insurance carriers have waning appetites for such types of risk as Catastrophe Exposed Property and Product Liability—shifting, as a result, some of these and other exposures to the E&S market.

To get their perspective on this reallocation of risk, NU asked three top E&S executives: At what pace, at what price and in which lines are we seeing a shift of policies from traditional carriers to the specialty market?

MARIO VITALE
CEO, Aspen Insurance and President of Aspen U.S. Insurance

We are seeing a significant shift in risks moving from standard-lines carriers to E&S markets; there are select lines for which this activity is stronger than others.

In Excess Casualty lines, we are definitely seeing a firming market, with just about every carrier pushing for rate increases and attaining about a 5-percent average increase. Wholesale submissions [in Excess Casualty] are up dramatically, with the majority of wholesale brokers already well above their 2011 premium and revenue numbers. Traditional carriers are nonrenewing accounts with exposures that were [unexpected] or that developed poor loss experience in prior accident years. Real estate, construction, hospitality and energy are examples of classes that have seen an uptick of submission flow back to the surplus-lines market.

In Inland Marine, Property lines are seeing a shift to the E&S market more on a peril-specific basis. For example, Flood coverage is being shifted from standard lines to the E&S market, mostly due to the significant losses sustained in 2011. As traditional carriers get a better grip on model changes, specifically RMS Version 11, they are shedding exposures in various wind-catastrophe-prone areas.

In programs business, we are seeing products leaving traditional carriers for the E&S market at a moderate pace. The Liquor line of business, catastrophe-exposed accounts and rate-sensitive classes such as wood-frame-constructed habitational business are experiencing 10- to 30-percent rate increases, while construction classes are up 10 percent year-over-year.

Overall, we think there is significant opportunity in the E&S market, and the activity demonstrates firming conditions across the board.

DAVID COHEN
President of Liberty International Underwriters U.S. and Latin America

Overall, any risk that has significant loss activity in terms of frequency and severity is moving back to the surplus-lines marketplace.

Product Liability risks are steadily moving into the surplus-lines marketplace, as well as contractors with difficult exposures.

Prices are firming, and retentions are increasing on tougher business. Certain segments, like Catastrophe Exposed Property, fall squarely in the nonadmitted marketplace and are subject to relatively significant rate increases on a regular basis. Pricing for E&S Property has firmed dramatically due to natural catastrophes and updated modeling software.

Concerning the pace of movement, it's neither rapid nor broad. Movement of business from standard lines to surplus lines is driven by various factors. In some cases, adverse loss development from the last five years has driven admitted markets away, and surplus-lines carriers are getting the business.

In an effort to keep premiums close to level, some insureds are willing to take much larger retentions—the types that admitted markets avoid. This type of request is often accommodated only in the surplus-lines marketplace.

JAMES DRINKWATER
President, AmWINS Brokerage

As a large wholesale intermediary, we don't judge our growth or analyze the activity based on what is placed in the admitted versus nonadmitted marketplace, as our carriers make that determination (most of our specialty markets own both admitted and nonadmitted carriers).

However, we have seen a significant increase in submissions and bound accounts in a variety of areas; the standard markets seem to have a lack of appetite for certain classes and specific industries, while our [specialty] markets understand the inherent risks and can underwrite them accordingly.

Our largest growth area in 2012 has been Catastrophe Exposed Property, and we continue to see widespread opportunities in this area.

In addition, we are seeing other areas where the market has moved away from the standard admitted marketplace, including New York contractors, transportation and health care, to name a few.