7 Questions About E&S for AmTrust’s Erich Bublitz

In September, with the annual WSIA conference on the horizon, Risk & Insurance® spoke with Erich Bublitz, the head of excess and surplus for AmTrust Financial Services.

Risk & Insurance: Nice to talk to you again, Erich. What do you see on the horizon in terms of E&S market predictions?

Erich Bublitz: Business has obviously been flowing into the E&S market at a pretty good clip. It’s been outpacing the growth of the standard market, for a number of years now. I don’t think we’re going to see anything that indicates that’s going to slow down anytime soon.

E&S used to be a very niche part of the insurance market. It’s obviously not been niche for quite a while. It’s becoming a a vital part of the market and not just because the premium is going up, but because of the solutions it’s putting out there. To add to that, with the states, be it for political reasons or staffing reasons or any number of other reasons, getting filings approved is becoming a herculean task at this point.

A lot of carriers have thrown their hands up and said, “We just we can’t insure things the way that we want to if we have to wait for the filings to get approved, if they ever get approved.”

R&I: So from the pace at which states are moving and what kind of shape their insurance offices are in, you’re seeing a slower approval of admitted market filings these days?

EB: Nobody’s ever accused the state insurance departments of being fast at reviewing filings. But with how fast everything’s changing right now, the new risks that are coming up and the inflationary pressures are really driving an increase in the number of carriers that are looking to have new file rates or new file forms. That’s just overloading the insurance commissioner’s offices right now.

Few of the filings are decreasing rates. They’re mostly increasing rates and tightening coverage. There’s not a lot of desire to be the insurance commissioner that’s saying, “Yes. I’m approving a lot of rate increases.” So there’s cases where they’re overstaffed or understaffed and overworked and can’t get to them.

There’s also the case where they don’t really want to be the ones that are approving rate increases. So all of this is a perfect storm of carriers, in a lot of cases, having a choice of either they can’t write the business or they’re going to write the business at a loss, which is not sustainable.

In many cases, they are going to find ways to move the business in the E&S space. That’s one of the reasons why you’re seeing an uptick in the E&S space, and I don’t foresee that changing anytime soon.

You’re starting to see the impact of some of the states that are having homeowners’ insurance crises. That business is starting to move into E&S for the exact same reason.

R&I: On another topic. Looking at reinsurance, we’ve certainly heard a lot in the past 18 months, property just being one example, about reinsurance capacity and rates. But what’s your take on the on the hard reinsurance market’s impact on E&S?

EB: In a lot of cases, reinsurance drives the insurance space. And E&S tends to drive the insurance space a little bit more just due to the nature of the business that generally sits in the E&S space. The reinsurers have gotten hurt, and they’ve gotten hurt on the property front. They’re trying to get more rate, but they’re getting hurt on the casualty fronts as well.

There’s been a lot of adverse development. There’s been a lot of under-reserving going on in the space. Each carrier feels that to some extent, but then, obviously, the reinsurers feel that on a much bigger, aggregate level. What is being recognized is that pricing on the casualty front is not appropriate. And they have years of adverse development coming to fruition at this point.

So the capital is not as available as it used to be and not just on the property front. It’s not necessarily that the reinsurers are exiting anything, but they’re certainly rethinking where they’re deploying the capital and try to be a little bit more circumspect.

R&I: How would you assess the role of MGAs these days and the impact they are having on risk placement?

EB: I’ll give you my thoughts on what MGAs were originally there for, and where they stand now. Years ago, MGAs were really created to address a very specialized area. They either wrote something that was a limited need product or they had a special distribution that wasn’t available. Generally, they cornered a market somewhere.

They were there to write the things that carriers couldn’t write or the scale didn’t work for them. Recently, MGAs have become much more generalist, whereas before carriers may have offloaded these very special areas to them.

Now carriers are competing against these MGAs on very traditional products. So, general liability products are now written by MGAs, whereas before, that wasn’t really what the MGAs did. There are some great MGAs out there, and those tend to be ones that are there for the long term.

The problem that I have with some MGAs is they’re building themselves up and their business plan is to sell themselves off. They’re less worried about the long term performance of the book and more worried about their top line performance.

When you’ve got carriers with the long term exposure, competing against MGAs that are looking in the short term, that doesn’t do good things for the rate environment. Going back to our previous conversation, MGAs largely exist because of the reinsurance support that they get. So the hope is the reinsurers are really taking a look and saying, “where is my long-term relationship going to lie? Is it with carriers that I know are going to be around for 10, 20, 50 years?”

Or is it with MGAs that I know are going to sell themselves and thus maybe are a little bit less worried about you know, properly deploying my reinsurance.

R&I: What’s your take on the impact inflation is having right now on either carrier appetite or the ability to underwrite correctly?

EB: Inflation gets to every part of the insurance business, but it really impacts the long-tail business. There’s social inflation and there’s fiscal inflation. We really have been focusing on social inflation as an industry, at least that’s what we’ve been talking about quite a bit. And we should absolutely be talking about it.

But fiscal inflation is starting to become a bigger issue than I think anybody really recognized. Inflation is now down a little bit. But it’s still inflation, and it still compounds year over year. I think a lot of people say that inflation’s higher in the service sector than necessarily is in the goods sector, and a lot of what we pay for is services. But even on hard goods, if it’s a loss that involves rebuilding something, the cost of materials are up.

That’s not a social inflation issue. That’s a fiscal inflation issue. A 2×4 costs more than it did two years ago and more than it did five years ago. Even if inflation were to slow down to 2%, it’s still 2% every year, year on year. Getting that down to the underwriter level takes a little more time, but there seems to be more recognition of it. But going back to my original point, so much focus on the social inflation, which probably is more impactful. We can’t discount the fiscal inflation out there.

R&I: Switching gears, we understand that you just rolled out E&S property coverage?

EB: We just went live with E&S property. We think it’s a great time to enter the space. The market, obviously, was soft for much too long. We’ve seen double digit rate increases for the last few years.

We think rates are now at a reasonable level. I don’t think there’s redundant rate in the property space right now. You saw certain areas years ago where there was redundant rate. D&O rates were multiples — probably than what they absolutely had to be. That’s a great example of it, unsupported access.

I think property rates are now where they should be, and thus, we entered the E&S property space. As we talked about earlier, you can’t adjust very quickly in the standard market. So if rates do need to go up, E&S allows us to do that.

If rates start to soften a little bit, E&S allows us to stay competitive in that space. So where we think we have rate adequacy and we have flexibility with E&S, we think that’s a great combination for us to enter the space. Timing is everything, especially on property.

R&I: As you head off to WSIA, anything else that was top of mind for you?

EB: The only other thing I’d mention is the talent pool. We continue to see a challenge in the talent pool.

It’s, quite frankly, difficult to get young people into the insurance industry. It doesn’t sound like something that people really want to do, which is unfortunate because it’s a great industry, and it’s not what people think it is. It’s a people business. It’s not a numbers business. It’s not a forms business.

It’s a people business. As an industry we have to make sure that people understand this is a great business to be in. Outside of that, we’re starting to see retirements. People who’ve been in the industry for a number of years are are starting to retire. That’s driving the talent pool down on that side of it.

So we’re having trouble getting people in, and we’re losing people on the other end. As we’ve talked about, E&S is growing so quickly at this point. You have a lot more business, but you don’t have enough people coming in, and you have people exiting. Whether we’ve created it or not, we’re experiencing a talent deficit. Like everybody else, we have to make sure that we’re growing our talent pool and that we’re finding new ways to bring people in. &