NAPSLO's 2015 Annual Convention, held at the Manchester Grand Hyatt San Diego and Marriott Marquis San Diego Marina, drew record attendance this year, reinforcing the industry sentiment that business in the Surplus Lines market remains, in a word, excellent.
NU was on hand in San Diego conducting interviews, providing content for a section of PropertyCasualty360.com specially devoted to the conference, and producing the NAPSLO show dailies over three days. Editor-in-Chief Shawn Moynihan sat down for a Q&A with NAPSLO Executive Director Brady Kelley.
Shawn Moynihan: We talk about the E&S industry having entered what some are calling a "new normal," in which outside capital drives prices down, but it also allows for more experimentation into the types of non-standard risks that surplus lines writers can write. I was curious about whether you think the E&S business is going to ever really be the same again.
Brady Kelley: I think everybody is calling it a "new normal," yes. There's an abundance of capital and we've had a relatively short break from any catastrophic events or significant losses, so that is still driving some pricing pressure in certain areas.
A significant cat loss, though, changes that "new normal" but I don't think it changes the capital. I think if you read A.M. Best's latest report, you'd see surplus lines and carriers are performing really, really well. They're returning on that capital, so I don't see the capital part of the equation changing much.
Shawn: I wanted to talk about Cyber in particular, because on the surface it really is a surplus lines risk in that you need some serious expertise and a deep bench of underwriting talent in order to price it appropriately—yet there are so many traditional-market carriers that want to be in that business, and several are. In the end, do you think Cyber should be more of an E&S play?
Brady: I do. It is primarily and absolutely an E&S play. I think you're right, more standard carriers are starting to develop some level of programming around it, but they're not offering the broad coverages that the surplus market is. I think that as cyber risks evolve, as insureds' understanding of what their exposures are change, products will continue to innovate to meet those.
What we're thinking about as an organization is something along the lines of a Northeast power grid failure or attack and the substantial losses that could result from that. Those are types of potential major events that I don't think anyone is prepared for, but it's going to be the E&S market that starts to develop the type of protections that will be needed.
Shawn: I realize that one of NAPSLO's ongoing endeavors is communicating the value of surplus lines solutions. How has reinforcing that message changed over the past several years, if at all?
Brady: Two years ago at this convention, we changed our logo and added the tagline, "Where complex risk meets innovative solutions," and then started describing our members' attributes around that message of why you want to trust them with your business. But from there, the editorials that we are able to place and the ads we've placed, the story is pretty simple to tell. I don't think there's a challenging message in that. Our only challenge is to figure out where we can best spread that message.
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