E&S pace of change remains “rapid and unprecedented”: AmWINS

Hardening conditions in E&S property are expected to continue well into 2020, while casualty submissions are surging and the IPO D&O market is the hardest in history, according to wholesale giant AmWINS.

In its State of the Market report for the fourth quarter, the firm’s president James Drinkwater said the pace of change taking place across the E&S landscape remains “rapid and unprecedented”.

AmWINS’ latest property renewal pricing trends data shows an acceleration in hardening through the third quarter.

The data shows that rolling quarterly increases were at 11.12 percent in July, 11.97 percent in August and 12.88 percent in September.

And the broker said rates are expected to maintain their climb through the first quarter of next year.

“Many feel the Q1 2019 accounts did not receive the full correction as those in later quarters, especially in tougher exposures,” said the report.

AmWINS executive vice president and national property practice leader Harry Tucker said, beyond that, weather is always the wildcard in forecasting pricing trends.

“We dodged a bullet with Dorian, and we still saw rate increases. Also, while we still see Florida catastrophe capacity accessible, we anticipate that will tighten up over the course of the next 12 months,” said the executive.

AmWINS highlighted the effects of increased attritional losses including South and Midwest hailstorms, water damage and California wildfires that are adversely impacting the property market.

“The result appears to be significant rate and deductible increases, as well as a tightening of terms and conditions,” it said.

The firm pointed to a decrease in capacity that included more conservative limits deployment, as well as the impact of increasing reinsurance costs.

“Carriers are not as willing to deploy their own capital where they once used inexpensive reinsurance. Reinsurance costs have increased, and less limit purchased means less working capacity,” said AmWINS.

It also highlighted the impact of a tighter ILS market.

“We dodged a bullet with Dorian, and we still saw rate increases. Also, while we still see Florida catastrophe capacity accessible, we anticipate that will tighten up over the course of the next 12 months”

AmWINS national property practice leader Harry Tucker

Emerging public adjustors crisis

On the loss trends side of the equation, AmWINS said public adjustors reopening closed claims – including those with no previous payout – was a driver of loss creep.

“Public adjustors are suing in order to renegotiate outcomes regardless of merit. Recently, an excess claim was closed, and then the carrier was sued, which resulted in a multi-million dollar payout for what was initially declined.

“This practice has potential to escalate, much like assignment of benefits (AOB) did in Florida, and will require legislative action to rectify,” warned the broker.

Meanwhile, the report identified property valuation as an item of discussion among underwriters, as carriers reevaluate what they had agreed to on deals over the past decade.

“We expect this issue will persist and there will be a push for higher replacement cost figures as well as evidence of how values were determined,” it said.

That could lead to a greater cost differential for the client, with higher total insured values and higher rates contributing to even greater premium increases.

AmWINS also noted continued de-risking by standard lines carriers of certain exposures, which is causing more business to move from the retail to wholesale channel.

It highlighted tougher classes of habitational property, particularly in Texas and Florida; undervalued accounts and those with poor loss history; wood-frame builders risk; risk with significant convective storms exposure; and woodworking operations.

Meanwhile recycling operations are seeing rates treble and deductibles double, with accounts plagued by property losses. Even loss free operations are seeing noticeable rates increases, said the report.

Casualty submissions

In casualty, AmWINS national practice leader Tom Dillon reported that submission counts are up 25 to 35 percent with all carriers.

“Underwriters are overwhelmed with submissions and need help in identifying the right opportunities,” he said.

The firm said that hardening continues in primary and excess layers, with sustained rate pressure in transportation, New York construction, long-term care and habitational segments, as well as marginal rate increase in products liability and non-habitational OL&T risks.

At the same time there is a significant volume of accounts being remarketed.

AmWINS said that in real estate apartment risks are one of the toughest casualty segments, with accounts plagued by third-party slip-and-fall claims as well as assault and battery.

Verdicts are rising especially in Florida, New York, Georgia, California and Texas.

Carriers are looking to add exclusions, including punitive forms such as habitability exclusions in California, action over exclusions in New York and A&B sub-limits or exclusions in Georgia and Florida, according to Corey Alison, executive vice president of AmWINS Brokerage in Georgia.

“Underwriters are overwhelmed with submissions and need help in identifying the right opportunities”

AmWINS national casualty practice leader Tom Dillon

In the excess and umbrella market multi-million-dollar judgements, time-limit demand changes, and social inflation are playing a huge part in carrier behaviour, with no sign of tort reform on the horizon.

“There is shrinking capacity in almost all areas of excess, especially auto, wildfire and active-shooter exposed risks. Shrinking capacity has caused rates to increase across the board. It is not uncommon to see capacity being cut in half while premium remains at the expiring or higher,” said AmWINS.

It added that carriers are being strategic about where they participate on excess towers and how much capacity they put down.

London and Bermuda needed to fill large trucking towers

Trucking is the segment most affected by capacity limitation, said the report, with many carriers either exiting or reducing capacity and/or moving up the tower.

“This has created a market where we need more carriers to build large towers, as well as the need to access the London and Bermuda marketplace in order to complete placements,” said Tim Larocca, executive vice president of AmWINS Brokerage of the Midwest.

Capacity has also evaporated for many risk purchasing group (RPG) programs that were previously offering $100mn to $300mn in limits, with a lack of carrier interest in writing lead $10mn layers, according to the report

“Those willing to participate are looking for premium levels at multiples of expiring RPG program pricing and sometimes rely on facultative reinsurance to support their capacity,” it added.

“Players in excess habitational consider the lead $10mn to be a working layer and are pricing for it similar to the underlying primary,” said Terrance Villar, executive vice president of AmWINS Brokerage of California.

While the direction of the E&S property and casualty marketplace appears to be consistent across most lines of business, professional lines “defies a single characterization of condition”, according to AmWINS.

Public D&O market is hardest in history

In D&O, the public space remains firm, especially for IPOs, technology, and biotech operations. AmWINS said the IPO D&O market “is the hardest in history”, with only a handful of markets writing primary layers.

“Premiums are through the roof, and $750,000 retentions have gone to multiple millions,” said Kevin Dorse, executive vice president of AmWINS Brokerage of Georgia. “However, we still have carriers out there willing to come in and pick up accounts.”

Dorse said the rate environment should be consistent for the next 12 months.

The market is “incredibly firm” for excess public D&O, where pricing is typically three times more expensive than primary, often running at 90-110 percent rates, said the broker, while underwriters are overwhelmed by submissions, and “working with those they know and trust”.

The private D&O market is more competitive, but is seeing some firming, said AmWINS.

Medical professional liability also continues to see hardening, with fewer carriers including recent withdrawals by Swiss Re and OneBeacon.

Long-term care is one of the toughest segments, with double-digit rate increases and carriers demanding higher retentions.

Insurers are also looking more closely at underwriting sexual misconduct exposure, with several markets cutting back abuse and molestation limits.

Financial institutions, including private equity, hedge funds, banks and other asset management firms, are described as a bright spot in the professional lines market, with ample capacity available, especially for small and mid-sized accounts.

Cyber for the financial sector remains a highly competitive market, said AmWINS.

“There are a plethora of markets and coverage is ridiculously broad in some cases,” said Dorse. “Even if you run across a carrier not looking to write certain cyber coverages, there are so many carriers that it’s not a problem.”