New capital raised so far unlikely to change E&S market dynamics

While capacity from new entrants is welcome in the hardening E&S market, it has not reached levels that will alter current dynamics, according to AmWINS president James Drinkwater.

Speaking on an AM Best webinar to coincide with the release of the ratings agency’s State of the Surplus Lines report, Drinkwater said his wholesale broking firm was encouraged by the new entrants it sees as it tracks capacity coming into the market.

“But it does not seem like there’s an enormous amount coming in and I don’t think the market environment is going to change as a result of new capital coming into the market this time,” he commented.

As previously reported, the E&S segment has been the subject of heightened interest, with actual and mooted start-ups and scale-ups targeting what are seen as once in a generation hard market opportunities.

Private equity-backed start-ups such as the vehicle being worked on by former Arch CEO Dinos Iordanou, as well as scale-ups including the reboot of StarStone US led by Ed Noonan and Jeff Consolino are aimed at the buoyant sector.

“Business is flowing into the E&S space at an unprecedented pace allowing wholesalers to prove their value and E&S carriers to provide innovative solutions to complex problems in a very thoughtful way”

Lou Levinson, Lexington CEO

Meanwhile, The Insurer understands there are several smaller E&S vehicles in the works, including the Sirius initiative revealed by this publication yesterday.

Capital is also coming in from reinsurers via fronting platforms such as Accredited and Clear Blue to access E&S risk, with both entities launching new subsidiaries focused on the space.

AM Best’s report highlighted evidence of strong momentum in 2020 for further top-line growth despite the impact of Covid-19, after direct written premiums grew by 11.2 percent last year to a record of just over $55bn.

The growth is being driven by a surge of submissions as admitted carriers shed business and fast hardening pricing in many lines of business.

On the AM Best panel, which was sponsored by the Wholesale & Specialty Insurance Association Education Foundation and Lexington Insurance Company, participants highlighted the opportunity in the marketplace.

E&S opportunities

Lexington CEO Lou Levinson said: “I see opportunities everywhere: filling holes in excess cat property programs, challenging liability programs, miscellaneous healthcare business, middle market A&E, builders risk, management liability, all over the contract bind space including some of the smaller brokerage business.”

He added that as well as harder rates, deductibles have improved from a carrier perspective as clients retain more appropriate levels of risk, and the industry is becoming “better stewards of capital and capacity to manage unprecedented volatility”.

“Business is flowing into the E&S space at an unprecedented pace allowing wholesalers to prove their value and E&S carriers to provide innovative solutions to complex problems in a very thoughtful way,” Levinson added.

“We are seeing opportunity everywhere, and it’s not limited geographically or by product. We are seeing a race of retailers to get their submissions in and secure alternative quotes from the E&S marketplace”

AmWINS president James Drinkwater

Markel Specialty president Bryan Sanders said the insurer is seeing terms and conditions tighten up as well as hardening rates.

“We are seeing capacity being more limited than what we have seen in recent years, and part and parcel of all that is the limits profiles that are coming in. A lot of our peers along with us have been managing the limits exposed very carefully,” he observed.

He also highlighted the strong flow of submissions into the E&S market, which he described as an opportunity in itself.

Drinkwater said that AmWINS continues to see double digit increase in its submissions in 2020.

“We are seeing opportunity everywhere, and it’s not limited geographically or by product. We are seeing a race of retailers to get their submissions in and secure alternative quotes from the E&S marketplace,” he said.