Excess and surplus lines leaders see continued expansion

SAN DIEGO – Excess and surplus lines market executives expect continued premium growth in the sector even as rates ease in some coverage lines.

Improved use of data and a continuing need for flexibility in coverage terms to address emerging risks should drive more business into the sector, they said during interviews Monday at the Wholesale and Specialty Insurance Association’s annual conference in San Diego.

Surplus lines insurers and wholesale brokerages have seen a significant influx of premium over the past five years as hard market conditions have driven business from the admitted market into the nonadmitted market in search of capacity.

According to a recent report by S&P Global Market Intelligence, the E&S market now makes up 9.2% of U.S. total direct premiums written, up from 5.2% at the beginning of the market hardening in 2018.

Other than the “normal ebb and flow” between markets, there’s little sign of the E&S market shrinking, said Tom Ruggieri, New York-based CEO of XPT Group.

Liability markets remain difficult as insurers continue to report adverse reserves development, and the property market is exposed to the trend of increased catastrophe losses, he said.

XPT’s organic growth has been above 30% for the past three years, he said.

There remains a discussion in the market over whether the rise in E&S business is cyclical or “secular,” said Lucy Pilko, New York-based CEO for the Americas region of Axa XL’s insurance operations.

“I’m solidly in the camp of this is a secular shift. And it’s a secular shift because we have more complex risks that are changing faster,” she said.

The E&S market has the advantage of freedom of form and can price risks at profitable rates for insurers; therefore, it can offer capacity admitted insurers are less willing to put forward, Ms. Pilko said.

“We may see a bit of a slowdown versus the fast-paced growth over the last couple of years, which has largely been fueled by property pricing increases, but I don’t expect to see this change as a share of the market,” she said.

Some property rates are easing, but liability rates are likely to remain hard, and the E&S market is seeing more personal lines business come into the sector as admitted insurers move away from states such as California due to wildfire losses, said Danny Kaufman, Detroit-based president of Burns & Wilcox.

The specialty intermediary has seen 20% growth this year, he said.

“We’re growing policy count, not just rate,” Mr. Kaufman said.

And the market is buoyed by an increase in insurers entering it, said Jodie Kaufman Davis, president of Burns & Wilcox Canada and executive vice president of Kaufman Financial.

“There are regular new entrants just really wanting to get into it, and there are also a number of E&S markets that are really focusing on the wholesale distribution chain,” she said

In addition, the increase in fronting insurers has added creativity to the market, Mr. Ruggieri said.

“Ten years ago, there were three fronting carriers, now there are 21 fronting carriers, and that’s just like a sandbox for creativity and product development by the specialty insurance distribution marketplace,” he said.

E&S insurers also benefit from improved data and analytics, said Eric Koppang, Chicago-based head of wholesale primary casualty at Navigators, a unit of The Harford Financial Services Group Inc.

“Data and data analytics play a big part in us being able to interpret what’s going on quicker and with a great amount of accuracy,” he said.

The company can make more speedy decisions on whether to pursue various lines of business, he said.