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Digital EditionCommercial Property, Cyber and D&O: How Leaders Attending WSIA Are Rising to Meet Heightened Risks
Just as the need for insurance coverage has increased markedly in the past 12 months due to a multitude of risk factors, so has the excess and surplus (E&S) market stepped up to the plate.
Despite being down from its peak year-over-year rise of 32.3% in 2021 and 20.1% in 2022, U.S. E&S direct premiums climbed 14.5% in 2023, according to S&P Global Market Intelligence.
Such is its growth that the E&S market accounted for 9.2% of the country’s total direct premiums written in 2023, up from 5.2% in 2018. Leading the way has been a combination of three commercial property lines and homeowners insurance, with direct premiums surging by around 41% to $27.4 billion in 2023.
Surplus lines has also maintained its leading market share of the cyber market, peaking at 59%, as it has also done in directors and officers (D&O) to an average of 10% over the past three years, according to research by AM Best.
But E&S has also proven its worth in terms of providing capacity to cover a host of other exposures that have come to the fore in recent years, including geopolitical risk and supply chain problems, as well as this year’s Atlantic hurricane season, which is forecast to be one of the busiest ever.
“With a fast-changing geopolitical landscape and supply chain problems, it is an opportunity for E&S to shine,” said Kyle Burnett, head of E&S property, Swiss Re Corporate Solutions.
“We can turn on a dime to address those situations, and tailor our forms and coverages for specific or unique opportunities that come from those, as opposed to a much longer and more difficult process the standard/ admitted carriers face in providing solutions in those situations.”
Hurricane Season
The Atlantic hurricane season is likely to present one of the biggest challenges — and opportunities — for the E&S market.
Hurricane Beryl caused extensive damage when it tore through the Caribbean, East Coast and Southern states; the earliest category 5 hurricane on record, Beryl left brokers scrambling to check their clients’ terms, and insurers gathering loss estimates and early claims.
Another key problem for the E&S market is the shortage of talent on the underwriting and brokerage side. Demand for both is at an all-time high, and as more people retire and underwriters now work remotely, the opportunity to mentor, develop and educate the next generation is greatly diminished.
Marc Dantuono, head of property, MSIG USA
Moving forward, two of the biggest challenges will be pricing adequacy and efficiently delivering capital to buyers.
In terms of pricing adequacy, the traditional retrospective rating model that uses past experience to predict future losses remains a major stumbling block, particularly given the ever-changing nature of risk.
“This can be seen on third-party lines with changes in legal climates, both the increasing number and size of nuclear verdicts, the evolution of unknown exposures such as PFAS, and several other factors that underwriters cannot necessarily underwrite for,” said Adam Mazan, president, Risk Placement Services.
“On first-party lines, weather patterns continue to evolve, driving more severe convective storm losses, increased losses from named storms and wildfires, and other aspects that can be challenging to predict.”
Mixed Results
After big rate increases in 2023, it has been a mixed bag this year. Property — one of the biggest risers last year — has now subsided to low single digits or even negative growth as carriers’ profitability has improved and increasing competition persists.
“The marketplace can be volatile depending on the risk,” said Marcel Ricciardelli, senior vice president with the North American environmental and engineering division at Allied World.
“Particularly if you have a heavy auto exposure or a really challenging high-severity product liability exposure, underwriters are looking for double-digit rate increases on lead umbrella renewals.”
On the casualty side, there have been high single to low double-digit increases, given the uncertainty around pricing adequacy. Carriers are still experiencing loss develop ment from 2016 to 2020, leaving them unsure if today’s pricing is sufficient to maintain profitability.
Financial lines have stabilized after two years of significant rate reductions.
However, professional lines — specifically large cyber and public D&O — are under severe pressure caused by new entrants and greater capacity.
Many markets have focused on ancillary lines, including private D&O, employment practice liability insurance and other errors and omissions, leading to similar rate pressure.
As the admitted market has shrunk and hardened, pulling back or exiting markets with high exposure to catastrophe losses, so more business has been driven into E&S. Yet capacity is harder to come by for more lossprone exposures such as habitational, municipality and high-hazard products as terms continue to tighten.
“As the standard market’s risk appetite changes, that’s always going to drive the flow of certain lines of coverage into the surplus lines market,” said Brady Kelley, executive director at the Wholesale & Specialty Insurance Association (WSIA).
As regards submissions, the E&S market is well-positioned to accept new business, driven by technology advances that enable underwriters to triage them more quickly and efficiently. But it also requires brokers to better qualify accounts and expectations with their retail partners in order to enable carriers to be as efficient as possible.
“The new business submission count is growing faster now than it was 18 to 24 months ago due to a market change, particularly in property,” said Scott Purviance, CEO of Amwins.
Wendy Winberg, VP of carrier operations at PCF Insurance Services, added: “The E&S markets are well equipped to manage new submissions, leveraging their flexibility, expertise, capacity and innovative approach to meet the needs of clients in challenging and dynamic risk environments. They will likely continue to address emerging risks such as threats, climate change and technological advancements, and will be active in developing specialized products to cover areas that the traditional market won’t insure.”
Moving forward, the wholesale market will continue to be critical to the success of future placements with its unique ability to pivot and adapt quickly to changes. As certain states get tougher on the underwriting changes admitted carriers are allowed to make, the E&S market will play an increasingly important role for buyers.
“The E&S market will continue to flourish due in large part to the sector’s ability to adapt quickly to changing industry dynamics — including rates, forms and rules — shifting markets and fluctuating economic cycles, among others,” said Marc Dantuono, head of property at MSIG USA.
“When the standard or admitted market contracts or becomes overly constrained or conservative, the E&S players will continue to expand and fill this muchneeded coverage gap.” &
