Excess casualty E&S entrants are tempering rate increases: AmWINS
The steep ascent of casualty excess and surplus lines (E&S) pricing will slow this year as new capacity continues to temper rates and many accounts enter their second renewal cycle of large increases, AmWINS believes.
- Hard market conditions for “at least several more quarters”
- Some construction markets providing tiered rates and “creative pricing structures”
- Energy excess rates up 15-30% while lead $25mn capacity “very difficult”
- In real estate casualty, quota sharing now occurring within the first $25mn
- Rate increases for best performing transportation risks now less than 20%
In a state of the market update, the wholesale broker commented that the casualty E&S market this year will see similar themes as in 2020, with attritional losses and nuclear verdicts continuing to drive pricing increases.
“Hard market conditions in the casualty marketplace are expected to continue for at least several quarters, although at a diminished level compared to last year,” the update said.
AmWINS reported that primary general liability rates remain fairly flat. But the excess market has seen average rate rises over the last 12 months of over 50 percent, with increases as high as 300 percent in certain industry segments.
“I believe most of our carriers are now comfortable with their current attachment point and limit deployment on individual risks. However, there may be some movement in certain classes, especially auto-exposed risks”
Tom Dillon, AmWINS’ national casualty practice leader
AmWINS believes a key difference in the market this year is that the new carrier entrants into the excess space – from both London and domestic sources – have begun to temper rate increase in the traditional E&S areas of the market.
“The capacity we’re seeing come into the marketplace is experienced capacity,” said Tom Dillon, AmWINS’ national casualty practice leader. “Meaning well-established, well-regarded and well-capitalized insurance executives are willing to deploy their capital in tougher spaces, such as infrastructure projects and large commercial projects.”
Several segments still face a capacity crunch, particularly in high excess layers, however, because it will take time for the new capital’s presence to be fully felt, AmWINS said.
The broker also noted the expectation that rates, while still climbing, will slow their steep ascent because many accounts are entering their second renewal cycle of large pricing increases.
“I believe most of our carriers are now comfortable with their current attachment point and limit deployment on individual risks. However, there may be some movement in certain classes, especially auto-exposed risks,” said Dillon.
The executive added that the challenging conditions will continue in the absence of meaningful tort reform or until carriers gain more of a comfort level in certain segments and are able to avoid large verdicts and settlements.
The update highlighted how the Bermuda casualty E&S market is changing. The broker said the market is responding to larger risks in tougher classes, with healthcare, energy and transportation sectors all centres of expertise for the island’s carriers.
Despite the increase in overall capacity, most Bermuda carriers have reduced their maximum available limits, typically offering $10mn rather than the previous $25mn to $50mn. But AmWINS noted that limits of over $100mn can still be found while minimum rates per million have moved up from the $2,000-5,000 range to $7,000-10,000.
The update also gave some details broken down by sector.
Creative construction pricing structures
Gradual rate softening is expected in the casualty market for construction, after experiencing tightening capacity as well as higher rates and deductibles in 2020. AmWINS reported that some markets are providing tiered rates and offering “creative pricing structures” to assist with the increases.
While some new entrants will come into the market for primary coverage in the first half of this year, AmWINS reports that excess capacity is still tight, especially for the lead $10mn. In addition, the lead $5mn is extremely difficult to place for large auto fleets, residential/habitational construction and street/road construction.
AmWINS stated that robust competition remains for renewable practice programs, but expects potential firming in this area this year. Primary wrap-ups for frame apartments started seeing significant firming last year, which has continued in 2021.
“Frame residential projects on the west coast as well as Florida are particularly challenging, with an average of 20-40 percent rate increases over primary in other areas,” said Jett Abramson, executive vice president and national construction practice co-leader at AmWINS Brokerage in California.
He added that this trend is being driven by the relatively small number of carriers writing a large volume of these accounts starting to reallocate their capacity.
Energy excess “very difficult”
AmWINS expects energy sector rates to continue to rise for the next 12 to 18 months, with excess liability rates hardening even more than general liability rates.
“For mid to large-sized accounts with good loss history, we’re seeing moderate, single-digit rate increases on general liability,” said Jennifer Mier, executive vice president and national construction practice co-leader at AmWINS Brokerage in Texas.
“Some markets have increased minimum premiums, which makes small accounts difficult to place.”
“For mid to large-sized accounts with good loss history, we’re seeing moderate, single-digit rate increases on general liability”
Jennifer Mier, national construction practice co-leader at AmWINS Brokerage
AmWINS said excess rates are up 15-30 percent depending on class while excess carriers are looking for higher attachment points, putting pressure on primary carriers to fill the void.
“Capacity in the lead $25mn of excess is becoming very difficult,” said Ben Abernathy, assistant vice president and national energy practice leader at AmWINS Brokerage in Georgia.
“Additionally, refineries and pipelines are faced with higher rate increases than other segments of the energy sector, with only a handful of markets willing to look at lead on those classes.”
Inflection point in public entity
Placements in the public entity sector are growing increasingly difficult, AmWINS said.
Capacity has reduced in response to factors including escalating loss costs and severity trends, qualified immunity erosion and legislative uncertainties, increased payouts on liability claims, heightened adverse media scrutiny upon law enforcement, joint and several liability, and modified views of social responsibility.
No meaningful start-up capital has entered this segment, AmWINS observed.
“This market is at an inflection point of challenge, where all stakeholders involved need to approach renewals collectively with a solution-oriented mindset, coupled with regular, creative and candid communication throughout,” said Brian Frost, executive vice president and national public entity practice leader at AmWINS Brokerage in California.
Real estate capacity tight
The real estate segment saw “dramatic rate increases on excess” in 2020, AmWINS said, especially for accounts that moved outside of programs or from standard markets that non-renewed business in the lead.
The broker said rate increases this year may not be as dramatic but capacity remains tight, with it hard to obtain more than $5mn of excess in the first $10mn from any one carrier. AmWINS said quota sharing is now occurring within the first $25mn and lead excess buffers of $1mn to $2mn are more commonplace.
“We continue to search for alternative risk solutions as a way to avoid the continued deterioration of pricing and capacity,” said Corey Alison, executive vice president and national real estate practice leader at AmWINS Brokerage in Georgia.
Carriers have been adding communicable disease exclusions as well as pushing assault and battery sublimits where incidents have occurred. Habitability exclusions, previously found only on California business, are now being added by some carriers in other states as well.
“We continue to search for alternative risk solutions as a way to avoid the continued deterioration of pricing and capacity”
Corey Alison, national real estate practice leader at AmWINS Brokerage
“Shocking” transportation rate hikes relenting
In the transportation segment, AmWINS reported that best-in-class risks are seeing single-digit to 15 percent rate increases with significant premium jumps for distressed risks.
In the primary auto space, the broker said that primary auto carriers are increasingly willing to offer more than just $1mn combined single limit. But this area has seen a big reduction in underwriting appetite.
“Many markets have turned away from regions deemed a litigious nightmare – including the Northeast, Southeast and Gulf – placing moratoriums on new business in those regions,” said Chris Loggie, executive vice president, AmWINS Brokerage in Chicago, Illinois.
Capacity is still tight in the excess space but AmWINS said the “shocking rate increases have somewhat relented”.
The best performing risks are now seeing less than 20 percent rate increases on lead excess layers, while risks with significant loss development and other negative risk factors will see rate increases of 20 percent or greater, it said.