E&S property rates to soften further, while casualty pricing varies

SAN DIEGO — Property insurance policyholders accessing the excess and surplus lines market should see further rate decreases through the end of the year, but casualty rates will vary, industry executives say.

Overall submission flows into E&S remain strong, and industry executives predict the market will continue to grow, although at a slower pace, as buyers seek specialized coverage for hard-to-place risks.

The market has become more competitive as insurers have deployed additional capacity and some property business is returning to the admitted market, executives said during interviews last week at the Wholesale and Specialty Insurance Association’s annual conference in San Diego.

The market is in transition, said Matt Dolan, president, North America specialty, at Ironshore and executive vice president of Liberty Mutual’s global risk solutions business.

“There are pockets of extreme softening. Certainly, E&S property is an example of that,” he said.

Property rates

Modest property rate decreases are expected to continue, depending on what happens in the remainder of the hurricane season. “I don’t think that market has found its floor yet,” Mr. Dolan said.

Property rates are not in “freefall,” said Kyle Burnett, New York-based senior vice president, head of E&S property, North America at Swiss Re Corporate Solutions. “Rates are dropping, but that’s as carriers are making money,” he said.

Rates are down 15% to 20% for loss-free, non-catastrophe-exposed business and down 10% for catastrophe-exposed business, Mr. Burnett said. Loss-driven business remains flat or is seeing slight rate decreases, he said.

Some E&S premium flow may be returning to admitted property insurers as they regain capacity, said Michael Garrison, Red Bank, New Jersey-based head of wholesale for Navigators and head of international at The Hartford.

“Generally, we hear from the wholesale producers that they’re kind of flat year-over-year in terms of that flow and premium,” Mr. Garrison said.

Some non-cat, loss-free accounts are starting to move back to the admitted market, which is driving more rate competition, said Lindsay Shipper, Atlanta-based head of commercial property, North America, at Beazley.

“Whereas the accounts that are staying in the E&S market, we’re not seeing quite the same level of rate decreases that we otherwise would have for loss-driven, cat-driven accounts,” Ms. Shipper said.

That differs from the last soft market in 2016-2017, when there was a “massive swing” back to the admitted market, she said. That shift isn’t happening now because of increased catastrophe losses, especially more frequent convective storm and wildfire losses, she said.

The E&S market continues to see double-digit growth, said Tonya Courtney, Atlanta-based senior vice president of E&S brokerage property at Nationwide Insurance.

Admitted markets are less comfortable with market volatility, Ms. Courtney said. “The true E&S risks that belong in the E&S market, I don’t think the standard carriers are getting to the place where they actually are fighting for market share,” she said.

Casualty

E&S casualty rates vary, driven by ongoing “social inflation” — higher court awards and settlements — and litigation.

Some areas of the market are seeing rate volatility, where insurers are reevaluating their position and risk appetite, while other pockets remain relatively stable, Mr. Dolan said.

“If you’re truckers, heavy wheels, heavy fleet, the expectation is a continuation of modest rate increases. If you’re playing more on the benign side, small manufacturing, SME,” flat to modestly increased rates are likely, “and for the most innocuous pieces, there could be some expectation of rate decreases. But by and large it’s flat to up,” he said.

Rates vary by lines of business, positioning in the program and within classes, said Bill McElroy, New York-based portfolio director, casualty, at Aspen Insurance.

“Some classes remain very tight, like habitational real estate business. Areas of construction remain difficult to write,” Mr. McElroy said. “There is no one casualty market,” he said.

Underwriters are focused on staying ahead of loss cost trends by line of business, he said.

The casualty market is in flux, driven by the risk profile of accounts and associated hazard rates, said Ania Caruso, Atlanta-based national casualty president of Risk Placement Services, the wholesale division of Arthur J. Gallagher & Co.

Pricing is competitive in some areas, but capacity is contracting in others due to insurer profitability or pending litigation in certain jurisdictions, she said.

Rates are rising in excess layers, with double-digit increases for some, while primary rates remain more favorable for buyers, she said. “But even there, carriers are pushing for more. They want to see more of our clients, even on the E&S side, take more risk on their balance sheet,” she said.

Claims severity is an ongoing concern, said Sara Gundersen, New York-based executive vice president, E&S casualty, at Sompo.

“There’s no safe attachment point when you’re thinking about excess anymore. You have to take that into consideration and maintain that underwriting discipline,” Ms. Gundersen said.

The market is focused on price adequacy, attachment points, limit deployment and how to maintain discipline and profitability over the long term, she said.

Technology

Meanwhile, E&S insurers and wholesale brokers are using technology, including AI, to handle high volumes of submissions and improve risk decisions.

Technology enhances efficiency, said Nicole Perrault, Cupertino, California-based senior vice president and head of property and ceded reinsurance at Vantage Risk.

“One of the ways we can stay profitable is by running very lean on the infrastructure side. That means we have more money to be profitable for our clients too,” Ms. Perrault said.

Data analytics and data insight-driven underwriting are also helping with risk decisions, she said.

“Until this time last year, we did everything on a spreadsheet. We issued policies on a Word document,” said Lisa Davis, CEO of U.S. and Bermuda at Canopius.

In the past year, the specialty insurer has put all its lines into a policy administration system, Ms. Davis said.

Canopius recently licensed an AI underwriting platform from Kalepa, enabling the insurer to process more submissions and evaluate them more efficiently to determine which ones are more likely to be underwritten, she said.

“Then our underwriters can focus on those, so ultimately their hit ratio goes up and we write more business,” Ms. Davis said.

Property underwriters will soon be able to open a submission where the valuation and modeling have already been completed, Mr. Garrison said.

“What used to take an underwriter an hour or two hours, depending on the risk and type, is now done for them in 15 minutes,” he said.