Buffer opportunities return to hardening E&S property market

A hardening US excess and surplus lines (E&S) property market where rates on even clean cat-exposed accounts are up 10 percent is seeing the return of opportunities for writers of buffer layers in programmes, The Insurer has learned.

With US property underwriting and broking executives gathered in Washington DC earlier this week for the WSIA mid-year conference, sources have talked about a bullish outlook for the E&S sector.

Multiple broker sources have noted a significant uptick in E&S submissions as retailers increasingly look for wholesale solutions in response to retrenchment from admitted carriers in some of the more challenging segments of the property market.

With rates up 10 percent on loss-free accounts, but spiking as much as 40-50 percent on loss-driven challenged accounts, the market is being described as truly in transition.

As well as the widely reported reduction in appetite from Lloyd’s direct and facultative (D&F) underwriters following Jon Hancock’s tightening of the business planning process, limit shortening at AIG and its wholesale arm Lexington is also having a big impact on supply.

Sources have said that Lexington’s working capacity is down to a maximum of $25mn per amount, but in reality it is looking to put down smaller lines of $5mn and $10mn.

“That’s an opportunity for the E&S market. There are a lot of buffer markets that got squeezed over the last five to seven years that are now back in play,” said one senior broking executive.

Among a widening group of carriers prepared to fill in gaps between primary and excess layers are thought to be Aspen, Markel, James River and The Hartford’s Maxum subsidiary.

Where AIG or Lexington have come cut back on accounts where they previously might have put down a single limit (or 100 percent) on deals, there currently has not been an obvious replacement – with FM Global also thought to have been jettisoning large limit accounts on some of the tougher classes.

“I see the move towards syndicated and shared and layered programmes. What’s old is new again,” said the broker source.

Meanwhile, rate hardening is expected to accelerate as renewals approach in the second quarter.

“I don’t see the relief that we got last year after we all anticipated a spike in the market in January that didn’t come to fruition. It is unavailable this year that we’re going to see an increase. We’re just not sure what that ends up being,” said a senior executive.

Another property market broking source highlighted primary habitational business as one of the hardest segments of the market with loss-affected accounts up 20-30 percent.

Mounting losses in the segment have led to significant retrenchment from US carriers, as well as the well-publicized pull back from Lloyd’s D&F writers.

“Prices are going up significantly on loss drive business but still its sometimes difficult to fill placements. The premium on some of these deals is big, but the losses are big too. It’s a leap of faith in primary hab even though the deductibles and premium have increased over the last couple of years,” they added.

Another area of acute hardening is hospitality, and in particular coastal hotel accounts in the Caribbean, still reeling from the devastating 2017 hurricanes.

Sources have talked of a struggle to secure big enough limits for loss-struck accounts, including on builders’ risk programmes for properties still being rebuilt.

“The tail risk in those hotels and the losses from Irma and Maria just went vertical, so now those guys on the excess layers are charging a fortune for it,” said a senior property executive.

Another factor impacting renewals is a changed stance from FM Global.

As well as retrenching from more challenging property classes, sources have said the industrial and engineering specialist carrier has been pushing for double digit rate increases as well as putting on hold member credits.

For the mutual, member credits are thought to be set at 16 percent, which when added to double digit rate increases means an effective price rise or more than 25 percent.

That has resulted in some of those accounts coming to the rest of the market, including Bermuda.