Keep it rolling...

The second quarter earnings season is underway and, just for a change, commentary around the sustainability of current pricing momentum is a major focus among investors in carriers and brokers.

In a note ahead of the first reporters, JMP Securities equities analyst Matt Carletti was bullish on the E&S sector as well as the broader P&C market and its trajectory, even given his previous comments that the cycle is approaching the end of the seventh-inning stretch.

“Recent conversations with reinsurance brokers and underwriters post the 6/1 and 7/1 renewals, alongside an absence of the typical precursors to a slowdown (such as slowing E&S market volumes) and ongoing signs of capacity shortfalls in certain lines (notably property cat) give us confidence the pricing cycle is not yet waning, leading us to think that while we may now be getting close to the end of regulation, this particular hard market may be headed for extra innings,” he said.

And the datapoints keep coming. As we report later in this issue, data from the largest stamping offices shows continued strong growth in the volume of business flowing into the E&S sector – albeit with the notable pullback in California, which has been overtaken by Florida as the largest surplus lines state based on premium this year.

Carletti noted that averaging the two current largest E&S states of Texas and Florida suggests 28 percent growth in premium volume in the second quarter of this year – still strong and broadly in line with the 31 percent increase in Q1 23 and 33 percent in Q4 22.

As has widely been documented, one driver of the increase in premium volume being picked up by the surplus lines stamping offices is an increase in submissions as business flows from the admitted to the non-admitted markets.

Another factor is the generational and sustained hard E&S market, with rate increases into their fifth year and beyond in some areas.

Pricing trajectory

Latest data provides strong evidence of the challenging environment that remains for buyers, whose budgets have been hammered in recent years.

Amwins has provided this publication with updated second-quarter and year-to-date pricing metrics for its brokerage unit, with a breakdown between property, casualty and professional lines.

The data tells a story consistent with what has been seen elsewhere for the last couple of quarters.

Property price increases were at 26.0 percent for the quarter and 26.8 percent for the first half of 2023, demonstrating the rehardening of that segment of the E&S market that began in the aftermath of Hurricane Ian last year and was sustained by elevated reinsurance costs and other factors from January.

Casualty remained stable in its increases too – at 8.3 percent for the quarter, and 8.5 percent for the year-to-date.

Professional lines – where the most significant softening pressures have been evident in public D&O – were also relatively stable, with a 1.6 percent average increase in the second quarter and 2.0 percent for the first six months of the year.

Last week rival wholesaler CRC Group released its latest REDY index which showed an acceleration in property through the second quarter, reaching 28.2 percent price increases in June (see P56). The firm reported excess and umbrella price increases of 14.1 percent in June, private D&O at 2.0 percent, and cyber at 4.4 percent.

On the face of it, data from the two firms indicates – as expected – that property remains the hardest overall business line in the E&S market. And although price increases on casualty and professional lines are way down from the highs seen a year or two ago, pricing on average has not gone into decline, holding its own to further compound years of increases.

Investors will be looking for other data points from carriers as they report in the coming weeks, to assess the longevity of current market conditions for carriers as they seek to earn through hard market rates into improved margins over time, and for brokers as they look at the organic growth outlook.

From a buying perspective, though, conditions remain tough.

At a recent Burns & Wilcox seminar, the commentary from broking executives suggested the best the market can hope for is no more “mass exits” from a capacity perspective.

This market environment has been driven not just by a push for rate, but by a significant reshaping of carrier appetite that began with a drastic shortening of limits. Despite a raft of new entrants in some segments, so far it doesn’t appear as if capacity providers are taking a less disciplined view to deployment...