E&S casualty hardening could ease later this year: AmWINS

The hardening of the casualty excess and surplus lines (E&S) market has continued into this year, but AmWINS reports that some believe the level of rate increases could reduce when the market gets through its first renewal cycle in mid-2020.

In a first quarter state of the market report, AmWINS said the hardening of the E&S casualty market accelerated in Q4 2019 and continues into the first quarter of this year. Capacity is constricted and rates on primary layers continue to increase, especially in the segments of transportation, wildfire-exposed accounts and accounts with greater sexual abuse or molestation risk.

The wholesale broker said the rare exception is the products liability space, which remains largely competitive. This is despite the number of product contamination and recall incidents continuing to rise each year.

“Carriers’ fourth-quarter results do show some improvement over the same quarter prior year, but I don’t think we’re anywhere near the market turning in another direction,” said Tom Dillon, executive vice president and national casualty practice leader for AmWINS Group, in the report. “However, there is a school of thought that some rate temperance could occur as we get through this first renewal cycle in mid-2020.”

Shrinking capacity means the excess casualty markets continue to be more challenging than the primary markets. In most cases, excess rates are exceeding those of primary layers. This has led some buyers to reduce limits and retain more risk in the face of rising premiums.

The report suggested the hardening is being driven both by actual claims experience as well as fears over trends pushing claim payments up greatly, with social inflation and nuclear verdicts the big drivers.

AmWINS gave examples from last year of a $70mn jury award related to a robbery and shooting in a parking lot outside a Kroger grocery and MGM Resort’s agreement to pay up to $800mn in the Mandalay Bay shooting incident.

The broker reported that submission flow has spiked as brokers struggle to replace lost capacity, build limit towers and move some risks from admitted to non-admitted markets.

“We are increasingly seeing delays in quotes because underwriters are completely inundated with submissions. Brokers need to get applications in early, particularly with high limits or excess layers,” said Gary Grindle, executive vice president at AmWINS Brokerage of New England.

Corey Alison, executive vice president, AmWINS Brokerage of Georgia, said: “Additionally, for real estate in particular, there is much more attention being paid to the percentage this class is of their overall portfolio, which has made the carriers more selective on what they quote.”

The report said it will be clearer later this year how long the hard market will last. “The challenging market, combined with year over year losses trending in a negative direction, point to this hard market not ending any time soon,” Alison said.

Losses outpacing pricing for public entities

For public entities and educational institutions, AmWINS noted that loss experience is outpacing premiums.

Carriers are cutting back on limits in this area, making it difficult to place excess casualty. This is particularly true for elevated sexual misconduct risk, as well as accounts that have concussion exposure.

“In years past, you may have been looking at $300,000 awards to individual claimants,” said Brian Frost, executive vice president at AmWINS Insurance Brokerage of California. “Now, it’s going up to $3mn or $5mn. Additionally, new legislation, including survivor statutes, is being enacted by states. Carriers are simply wary because of all the uncertainty.”

As this publication has reported, a number of states have opened up or will open up windows for victims of child abuse to file claims that were previously time barred under statutes of limitations.

Transportation insurers rattled

The transportation segment has been hit hard by social inflation, said AmWINS, noting that nuclear verdicts against trucking firms “have rattled the market”. One prominent example was a Georgia jury last year awarding $280mn to a family of a Louisiana woman killed by a truck carrying steel, an amount far above the insured’s casualty tower.

“We are seeing double-digit rate increases across the board, although perhaps not quite the volatility we had seen last year,” said Dan Litterio, vice president at AmWINS Brokerage of the Midwest.

Passenger transport and public auto are extremely difficult to place. In addition, the report noted that underwriters are indicating that larger accounts are now not necessarily more desirable, while the market also “differentiates sharply” between clean and distressed accounts.

Bryan Touchstone, senior vice president at AmWINS Brokerage of the Midwest, reported there is much more competition for preferred business, which is accounts for well managed trucking companies with good drivers, low driver turnover and positive loss ratios. “There have been some new entrants into the primary auto space as well, so we are seeing rates on preferred business that are more competitive than in the past,” Touchstone added.

Construction increases of up to 400%

In construction, hardening continues with underwriters being selective about risk.

“On the low end, renewable primary programs for middle-market contractors are up only slightly, perhaps 5 percent to 10 percent. On the high end, excess towers on contractors with heavy auto fleets, even those that aren’t loss challenged, we’ve seen numerous increases in the 300 to 400 percent range,” said Jett Abramson, executive vice president at AmWINS Insurance Brokerage of California.

Excess carriers are increasingly unwilling to extend current programs or, if they are, are looking for a punitive additional premium for it.

“The days of $25mn leads are all but gone. Pricing has also increased dramatically, with rates of 125 percent of primary being seen,” said Donald Marshall, executive vice president, casualty, at AmWINS Brokerage of Georgia.

Exceptions are large commercial and industrial accounts, which are still desirable for both primary and excess.

The market is still very competitive for non-wrap project-specifics such as smaller apartments or mid-range custom homes. But it has firmed for wrap-ups, especially on excess and particularly lead excess.

Rates are increasing even more on the residential side, especially in the higher construction defect states including California, Arizona, Nevada, Hawaii, Florida and Washington.

“Renewable/ practice programs are still competitive within the primary space, but excess is firming and limits are being compressed,” the report added.