The Positive By-products Of A Dislocated E&S Insurance Market

The excess and surplus (E&S) lines insurance market in the US is in a state of flux. Ongoing challenges around capacity and historical returns on business have left many E&S players seeking opportunities to reap more profitable results across their entire portfolios. As a result, some surplus lines carriers are having trouble finding the capacity they need to meet all of the demands in the marketplace, making it more difficult for surplus lines brokers to find the efficient answers and solutions they’ve had access to in the past.   

“There’s an awful lot of movement going on,” explained Tony Gresham (pictured), president, access division, AmWINS Group, Inc. “The number of E&S carriers is beginning to dwindle with regards to their ability to meet the demands in the marketplace, and this is largely as a result of capacity concerns. In general, we’re seeing tighter underwriting rules, rate increases, and restrictions in the marketplace.”

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One area where capacity has been particularly constrained in the past few years is the property arena, according to Gresham. He cited a number of participating factors, including almost 10-years of very modest returns frequently coming in below the average cost of capital, and the natural catastrophes in 2017 and 2018, which created billions of dollars’ worth of losses globally, many of which turned out to be far worse than originally expected.

“The catastrophe losses in 2017 and 2018 sent some shockwaves through the reinsurance market,” Gresham told Insurance Business. “I would describe the reinsurance constriction on E&S property as significant to pronounced, and that’s driving capacity concerns in the property realm.  The general liability casualty market is seeing similar inflections. That market has been constrained for some time, but it seems to have started a very natural transition back to profitability. Capacity concerns in general liability lines are more focused on specific classes of business as opposed to the property side, where they exist generally across the entire class.”     

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Where there are challenges, there are always opportunities. Gresham pointed out that one of the stalwarts of the surplus lines insurance industry is its ability to recognize new risks, develop products and solutions quickly, and find efficient distribution for those products. The surplus lines market has “responded well” to the often challenging and unique exposures associated with emerging risks like cyber and cannabis-related business risks.

“One of the positive by-products of a dislocated E&S insurance market is that it creates opportunities for retail and wholesale agents,” Gresham commented. “As the risk landscape changes, insureds will approach retail agents looking for new solutions to manage their risks, and, in turn, the retail agents will look to the wholesale brokers to find insurance solutions that meet their clients’ needs. Any time there’s a new opportunity at your door, that’s a very positive thing.

“There’s also a ton of expertise available in the E&S lines industry, primarily among the wholesalers, to help retail brokers find solutions to the most complex risks. When an opportunity to transfer a risk presents itself, but there’s no easy solution available in the marketplace, retail agents can reach out to wholesalers to find those solutions and to get help in solving a problem that might never have been solved before. That’s a core tenet of why the wholesale insurance market is so important.”