Data points highlight E&S momentum as new players line up

US commercial insurance pricing was always likely to be a strong focus for investors during the Q4 earnings season, and the indication from early reporting carriers and brokers is that the momentum that is drawing new players to the E&S segment is holding on strong.

On its earnings call last week, Brown & Brown said that while rates in most standard lines were up 3 percent to 7 percent in the fourth quarter, E&S rates continued to move upwards at a significantly faster pace.

The firm said that E&S rates were up in a range of 10 percent to 25 percent when compared with the prior year.

There was a similar story at rival broker Arthur J Gallagher, where overall US rate increases were tracked at 8 percent.

But wholesale was stronger than retail, said the firm, with the company’s wholesale open brokerage operation Risk Placement Services seeing increases of 15 percent on average, according to group chairman, president and CEO Pat Gallagher.

The data points from the two US firms came after CRC and McGriff parent Truist Insurance Holdings opened the US reporting season last month by highlighting strong E&S growth driven by rate increases and the continued shift of business from standard carriers to the non-admitted market through the wholesale channel.

Early reporting carriers also pointed to the strong momentum, particularly in their E&S books.

Axis Capital president and CEO Albert Benchimol said E&S property rate increases were at 21 percent in the first quarter, as it reported overall average rate increases of 17 percent in its US division in Q4.

Selective said that on renewals pricing was up 7.4 percent in its E&S segment, but the increases surged to 23 percent on new business.

US specialty insurer RLI didn’t break out its E&S book but said overall casualty rates were up 11 percent in Q4, outstripping loss cost inflation, while increases accelerated to 15 percent in property.

On the firm’s earnings call, president and COO Craig Kliethermes said he believes double-digit rate increases are still achievable in auto liability, excess liability and D&O.

There was also bullish pricing commentary from WR Berkley – which has a meaningful E&S portfolio.

Although the specialty carrier’s CEO Rob Berkley said the current market was not like the capacity vacuum seen in the mid-1980s, he suggested there is a recognition that capacity is not going to be built out in such a casual manner as it has been in the past.

“And when it is provided, it will be with a lens towards a more appropriate rate associated with that,” he said.

That means that typically more carriers are being required to fill out insurance placements in the US commercial sector, including in the E&S market.

Surplus lines premium surges – again

There was also further evidence last week of the strong top-line growth in the E&S market, fuelled in part by surging prices.

The 2020 annual report from the US Surplus Lines Service and Stamping Offices revealed a 14.9 percent increase in premium to just over $41.7bn, on top of a 19.3 percent increase to $37.5bn recorded between 2018 and 2019.

According to AM Best, states with stamping offices account for just over 60 percent of overall US surplus lines premium volume. That would suggest that last year the total volume of premium in the E&S market reached around $70bn.

As previously reported, the surge in business coming into the E&S market and hard pricing across most lines has created an attractive opportunity for new players entering the market.

And last week there was further tangible evidence of incremental capacity being lined up to address the need.

After several high-profile start-ups, scale-ups and MGA launched in the second half of 2020, January has brought further new arrivals, with anecdotal evidence of several others waiting in the wings.

This publication reported on the launch of Upland Capital Group, led by Todd Hart, Jim Damonte and Mark Morrison with up to $200mn of backing from Newlight Partners and additional investment from management.

We also revealed details of the start-up’s initial launch plans in an exclusive interview with Hart.

And The Insurer revealed that plans are advancing for the launch of specialty carrier LIO Insurance by former Guy Carpenter executive John Ehinger and several alumni from Philadelphia Insurance Company.

Senior broking sources have pointed to a number of other proposals that are mostly thought to be each adding potential capital in the low hundreds of millions to the sector.

However, the level of incremental capacity currently entering the market is not seen as sufficient at this stage to drive any kind of tipping point on rates that would see any change in the trajectory of pricing this year.