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E&S from the Inside: Top execs talk about the market

Plenty of changes have occurred, and are still occurring, in the excess and surplus market. Our E&S experts discuss areas of concern, and where opportunities lie.

With Kimberly Smid, Kyle Burnett, Ankur Chokshi and Mike Takigawa

It is difficult to look at the E&S market in 2021 without reflecting on how we got here. Bolstered by excessively hard market conditions in the admitted markets, E&S has continued to thrive despite the challenges brought on by pandemic, more severe Cat events, nuclear verdicts, and overall economic strains.

That speaks some to the market difficulties that continue to pressure primary markets, but also indicates the resilience of the E&S market. AXA XL’s E&S experts sat down recently and discussed the state of the market. Here’s what they had to say.

Kimberly Smid, Head of E&S Americas Excess Casualty for AXA XL: From an excess market perspective, the market is still in flux. Carriers continue to be conservative with capacity and insureds appear to be purchasing less limit. From a rate perspective, we are still able to secure rate increases. Not to the extent we had been earlier in the year. We are seeing pressure on target classes & higher excess business. Challenges we are seeing from an industry perspective, the demand for underwriters remains a challenge. We are looking to expand our team and are currently working through that process. We are not seeing any relief in terms of large verdict awards. With the courts reopening, the break we saw in claims activity has ended.

Kyle Burnett, Head of E&S Property: The E&S property market is very hot right now. In areas like Florida and across the southeast for all classes of business (Condos, hospitality, habitational, manufacturing), it is becoming increasingly difficult for insureds to find capacity at pricing they were hoping to achieve. This is being driven by multiple years of hurricane activity and the unusual weather events all over the country: freezing weather in Texas, the increased wildfires in the west, and the flooding coming from coastal storms across places such as Pennsylvania, New York, and New Jersey.

However, the market is still strong. There is a lot new capacity coming in and just as many changing their appetites or exiting. Rates continue to increase but we are still not where we need to be for certain classes of business. Terms and conditions too are changing. Insurance to value is a hot topic, and one that was driven to the forefront after hurricanes Harvey, Irma and Maria. Insureds were finding that their locations, buildings, and products were not properly valued, and some Insurers were not doing enough due diligence at the time to ensure these locations were properly valued. This resulted in accounts not having adequate coverage & insurers not getting the right rate for a specific risk.

Another important topic and where we see change is addressing non-damage physical business interruption. As the pandemic continues, loss of business income has been on the minds of insurers and business owners alike. It is something that needs to be addressed so that both parties understand their coverage properly. The peril was not on the radar when many policies were priced, so those types of claims can cause quite a disruption.

E&S has continued to thrive despite the challenges brought on by pandemic, more severe Cat events, nuclear verdicts, and overall economic strains.

Ankur Chokshi, Head of E&S Primary Casualty: From a primary market perspective, we have seen a mixed bag in terms of opportunities. We have certainly seen distressed segments, such as hospitality, risks involving owners, lessors and tenants, and the premised-driven risks and product risks. Those stand out specifically because there is a higher element of defense costs and strategies we’re seeing from plaintiff’s attorneys. That is having a bearing on how we approach those risks.

It gets further complicated by the litigious environments in certain states or jurisdictions that do not work well with insurance companies. As we alluded to before, Florida is one of those states. We’re seeing some of those same strategies and outcomes make their way to other areas and states. That’s created a more heightened awareness from a primary market perspective.

Because of those issues, we have to be careful with how we structure and underwrite those risks. There are still ways to be successful in that environment, but we must be more acutely aware of what’s going on around the industry.

And there is plenty of opportunity. There is a massive uptick in submissions, as Kim pointed out, and there is growth opportunity in the E&S line.

Mike Takigawa, Head of E&O Professional: We’re continuing to see rates climb in professional lines. Capacity isn’t much of an issue at this point. There is still ample capacity in the market but that doesn’t mean that carriers are not being careful how they use it. There seems to be a little contraction on limit deployment. Where in the past, an E&S carrier may have taken a USD 10 million lead, are now only assuming a USD 5 million lead. A little bit of shuffling of participants on the lower layers of coverage a bit, but mainly on the primary. This is requiring E&S market clients to work with more carriers to build their programs.

Of course, the elephant in the room is cyber, particularly silent cyber. Carriers working hard to better understand what their exposures are to cyber losses in other lines of coverage and are making moves to minimize that exposure.
Other issues having an impact on Professional liability lines is litigation and the economy. Social inflation is still very real. From a professional liability perspective, this increases sensitivity in engagements. Service professionals need to pay careful attention who they work with or they could find themselves tied up in costly litigation because of the advice or guidance they gave their clients.

The economy is a big driver of claims too. When the economy goes sideways, the industry expects to see a rise in claims. When personal financial situations change or suffer an impact, individuals will find a way to right that, by suing or filing a claim against someone. Realtors, accountants, lawyers, and other service professionals can find themselves susceptible to such claims.


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US- and Canada-Issued Insurance Policies

In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.