Since 2004 Michael Miller has been president of Scottsdale Insurance, a leading E&S underwriter. Miller has 35 years of insurance-industry experience, with 26 of those years spent with Nationwide, Scottsdale's parent company. Here he talks about the current market cycle, lines Scottsdale is targeting for growth, and why E&S carriers are well situated to take on Specialty admitted business.
At what sort of pace and at what sort of volume would you characterize the shift of risks from the admitted market to E&S?
I don't think it's a huge amount of shift, but I do hear from our agents on a pretty regular basis that risk is shifting back. There is re-underwriting going on at some of the standard companies, and they are starting to understand that many of the risks they took out of our market in fact do carry a higher risk profile. So as their losses mount, they'll continue to look for ways to improve their results, and one way would be to kick some of that business back into the E&S market.
What specific lines are moving back faster than others?
A lot of the Construction policies that standard companies have taken out of our market will be the ones we'll see return the quickest because they develop pretty quickly. And obviously Cat Distressed Property—we'll see some of that business shift back just because standard companies are going to want to reduce their exposure profile or they have too much capital committed to those places.
In which lines would Scottsdale like to increase its market share?
The line we'd be willing to grow to whatever extent we could would be General Liability. We'd also like to grow in Non-Cat Exposed Property, but that's a very difficult market because everybody wants in. Everybody wants to leave the coast and go inland—and that drives the rates down for inland Property.
How would you compare this market cycle to others you've witnessed? Is it a brand-new world?
It's a new world only because of the circumstances that surround the change. Typically when you go from a soft market to a hard market, you see a quick ramp-up in rates—and that's not necessarily good, because the ramp-up occurs very quickly and then it comes back down. This one, because of the economy, is starting a slow climb out.
This is more sustainable; it fits better with the state of the economy where we still don't have a robust recovery. If insurance rates were going up dramatically during this kind of economy, it would cause a lot of consternation among insureds because they wouldn't be able to afford the coverage. So I really like this kind of a change.
Looking ahead, where are the greatest opportunities for growth?
Over the long term, if you look at historical patterns of the E&S market, it has outgrown the standard market—and I don't think the fundamentals have changed that would cause that not to continue to occur if you look at the next five to 10 years. So once the economy gets back, you'll see the E&S market grow.
The other part of the market that we look at is not E&S but Specialty—that hard-to-place commercial business that is admitted. This is also an area that will grow because risks are getting more complicated, and companies are getting more complicated. So those [insurers] that are good at risk selection, good at modeling risk, good at pricing risk—and those are the hallmarks of the E&S industry—those companies would also be good at that Specialty admitted business, and we do a fair amount of that as well.
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