The growing excess and surplus lines industry again outpaced growth in the admitted market in 2013, thanks to light catastrophe losses after a devastating Superstorm Sandy in 2012. And, barring any major winter storms, the same will likely be said of 2014.
As a result, industry leaders anticipate the performance of the E&S market next year will continue to impress, with downward pressure on pricing and growth in some key lines. Producers who hope to access the surplus lines market, then, would do well to hone in on three key trends.
1. The market is softening
While not a traditionally soft market, the impact of alternative capital and low cat losses in recent months has created some downward pressure on pricing—particularly in property.
Swiss Re, for example, reported worldwide property losses of just $21 billion in the first six months of 2014, down $4 billion from the same period in 2013.
The result has been property decreases of between 5% and 15%, says Danny
Kaufman, corporate vice president at
Kaufman Financial Group and managing director of the Burns & Wilcox Chicago office.
“I think that softening will carry forward into the next year, but there is no cause for alarm,” Kaufman said. “E&S is definitely strong and growing, and the reason for that doesn’t have to do with rates—it’s because the market overall is growing.
“While rates are declining, the actual appetite for what we’re writing is growing.”
2. Several lines in the E&S space are growing
Appetite is particularly rampant in certain lines. Cyber liability, which has long been a buzzword among insurance professionals, is finally starting to enjoy significant take-up rates among businesses—and not just large companies with a risk management team in place.
“[Security and privacy] is a risk that is experiencing broad visibility from public policy arenas, to corporate boardrooms, to our own internal underwriting community,” said Robyn Ziegler, a spokesperson for
Zurich North America. “
Zurich is seeing double-digit growth in this area.”
Thanks to a wave of aging and retiring Baby Boomers, long-term care is also enjoying growth and major E&S players are increasing their appetite.
“The market is stable [with] not many new entrants,” David Bresnahan of
Berkshire Hathaway told
Insurance Business America. “In the healthcare continuum, it is the segment that will be the largest and fastest-growing.”
Construction—and builders’ risk in particular—is also growing after a very long lag, spurred by the Great Recession. Kaufman warns, however, that the upswing in construction has meant standard markets are taking on risks that traditionally belong to the E&S sector.
“Every few years, admitted carriers come in and take accounts that belong in E&S,” he said. “They’re writing habitational risks for standard rates, which is not sustainable in the long run.”
3. Regulatory changes could have some impact
As E&S market players prepare to move into 2015, several industry professionals are keeping an eye on upcoming elections and the fate of the Terrorism Risk Insurance program—currently awaiting action in Congress.
While many believe the influx of capital into the market will keep terrorism insurance policies available, affordable pricing is a burning question many must consider if the federal backstop is not renewed into the new year.
And as for election results?
“Obviously we’re all keeping our eye on the upcoming election, but the industry has been here for a long time and we’re sustainable,” Kaufman said. “The administration or political makeup doesn’t make a long-term difference.”
