Liability insurance market expected to firm further

SAN DIEGO – Liability insurance policyholders that access the excess and surplus market should expect rate hikes to accelerate over the next several months, industry executives say.

Deteriorating underwriting results from past years and the continued trend of higher court awards and settlements will likely lead underwriters to keep pushing for price increases in a market that has seen rate hikes compound over the past six years, they say.

Tough classes, such as habitational risks and trucking, will continue to see the biggest increases, they said during meetings at the Wholesale and Specialty Insurance Association’s annual conference in San Diego last week.

In general, the excess and surplus lines market continues to expand, and many executives at WSIA said they expect continued growth.

“Some of the freedom of rate reform that you have in the E&S space just gives you so much flexibility to address emerging risk and to address all the uncertainty that we continue to see,” said Sabrina Hart, president and CEO of Munich Re Specialty North America.

Much of the E&S market’s growth over the past several years has been due to increased rates and a lack of capacity in the admitted market.

“Casualty is clearly getting firmer,” said Tim Turner, chairman and CEO of Ryan Turner Specialty, the wholesale brokerage unit of Ryan Specialty Holdings Inc.

Rate increases are highest in challenging classes such as habitational, transportation, large venues and consumer product liability, he said.

“That’s a large part of what comes into the wholesale market, so the flow itself remains very strong, and we’re seeing rate increases on a lot of these particular classes of business,” Mr. Turner said.

The liability market seems to be at “an inflection point,” with rates poised to rise further, said Lisa Davis, CEO of U.S. and Bermuda at Canopius US Insurance Inc.

Canopius is entering the excess liability market, offering $5 million in limits.

“It’s also a good time to enter the market for someone like us who doesn’t have any legacy issues, so we can kind of start with a clean slate,” Ms. Davis said.

Vantage Group Holdings Ltd. is seeing 8% to 10% rate increases across its excess liability portfolio, said Alex Blanco, Philadelphia-based CEO, insurance.

Trucking rates are increasing by 15% to 20%, Mr. Blanco said.

“We continue to see outsized verdicts in particular jurisdictions that warrant that view of limited exposure in capacity and increased rates,” he said.

“We expect general liability to be hard for the next year,” said Danny Kaufman, Detroit-based president of Burns & Wilcox.

“Litigation funding, the regulatory environment, nuclear verdicts, all those common issues … just cause a very difficult GL environment,” he said.

Several executives cited litigation funding, where an investor funds a lawsuit in return for a portion of the proceeds, and so-called social inflation as significant concerns for underwriters.

“There are so many nuclear verdicts coming into the transportation area. It’s not just long-haul trucking; it’s livery, it’s shared economy, it’s taxis, buses. Everything to do with transportation is red hot, and the market’s shrinking,” said Mr. Turner of Ryan Specialty.

Reinsurers are also putting pressure on the market, said Russ Stein, Scottsdale, Arizona-based area executive vice president at Risk Placement Services Inc., the wholesale unit of Arthur J. Gallagher & Co.

“There’s a lot of reluctance in the reinsurance community to continue to put forth their reinsurance capacity to insurance companies for higher hazard risks, like habitational and trucking,” he said.

Insurers’ unwillingness to offer large chunks of capacity has complicated placements, Mr. Stein said.

“You have to play a little bit of Tetris on some of these larger excess towers and figure out who goes where and what capacity you can get,” he said.

In the excess market, insurers rarely offer capacity in more than $5 million segments, said Kyle Sternadori, New York-based head of excess casualty at Navigators, a unit of The Hartford Financial Services Group Inc.

“It’s a market that has plenty of capacity but controlled deployment amongst the carriers,” he said.

Deteriorating underwriting results from prior years are also affecting the market.

Concerns over increased losses and prior-year development will result in higher liability rates, said Eric Koppang, Chicago-based head of primary casualty at Navigators.

“Loss cost trend is a big buzz right now and making sure that our rates for renewal pricing are staying ahead of that trend,” he said.

Habitational risks are taking significant self-insured retentions, whereas five years ago insurers were offering first-dollar coverage, Mr. Koppang said.

Insurers are trying to identify how loss trends between 2019 and 2023 are developing and assess whether the price increases and restructuring of programs sufficiently reflect those loss trends, said Matt Dolan, president, North America specialty, at Ironshore and executive vice president at Liberty Mutual Insurance Co.’s global risk solutions business.

“I would call it a firm market, and maybe getting firmer as people are beginning to get a better sense of what those lost trends ultimately look like,” he said.

Several companies have reported adverse development for 2015 to 2019, said Liz Kramer, president of E&S at Munich Re Specialty North America.

“It seems like there’s more optimism in the 2021 to 2023 years — that is when we entered the market — but I’d say it’s really too soon to tell,” she said. “We’re seeing a much firmer casualty market right now.”