Lou Levinson, president and CEO of Lexington Insurance coverage Firm, an AIG firm, definitely appears to assume so. In reality, the trade veteran of over 30-years stated he feels “completely improbable” concerning the trade’s potential to maintain the momentum within the surplus traces market, including that the trade “continues to supply an important operate because the world will get extra advanced”.
Progress within the surplus traces market is properly out-pacing development within the total property and casualty (P&C) market – at 17.5% in comparison with total P&C trade development of round 2% in 2020. In its 2021 US Surplus Traces – Phase Evaluate, AM Greatest famous that regardless of quite a few challenges from an financial, regulatory, legislative and market standpoint, surplus traces insurers’ market share has greater than doubled over the past 20 years, from 3.6% of whole P&C DWP in 2000 to 9.1% on the finish of 2020.
Over the identical time interval, surplus traces as a share of economic traces DWP grew from 7.1% to 18.4% – development that Levinson stated demonstrates the “sturdy assist and want for the market and the momentum that we’re in”.
Learn subsequent: How M&A has impacted the hard D&O insurance market
Talking in a ‘State of the Surplus Traces’ webinar, produced by AM Greatest and the Wholesale and Specialty Insurance coverage Affiliation (WSIA), Levinson described how submissions proceed to circulation into the E&S house at “an unprecedented charge”. He stated: “It’s fueled by continued unknowns round COVID, cyber, a rise in property CAT frequency and severity, convective storm, flooding, wildfire, I believe we even had locusts within the East Coast this 12 months – the listing simply goes on and on. […] That is the place the excess traces section actually shines; the place we offer progressive options for very advanced issues.”
Whereas charges for surplus traces enterprise have improved and grow to be extra reflective of the dangers the market assumes, Levinson warned that there are extra unknowns lurking on the horizon.
“We’re not achieved but,” he careworn. “There’s a shift in public notion round companies, there’s claims inflation, there’s odd inflation, there’s a well-funded plaintiffs’ bar coming at us, and there are enhancements in third-party litigation funding. A nuclear vertical used to occur each every now and then; now, they’re simply verdicts they usually occur on a regular basis. In August, the trade had a $1 billion single fatality auto loss come out of Florida.
“And so, I believe the trade’s greatest hedge towards that’s pretty easy,” he stated. “It’s not sophisticated. It’s threat choice, attachment phrases, limits and value, after which execute flawlessly on these methods all through the market cycles.”
Learn extra: E&S insurance market going from strength to strength
Reflecting on market cycles, Levinson stated he doesn’t imagine the excess traces trade is in the course of a typical ‘arduous’ market cycle. Moderately, he described the present scenario – one the place carriers are providing decrease limits, for extra premium, and with stricter coverage phrases and circumstances – as extra of a “market correction that’s actually pushed by corporations demonstrating self-discipline round capability and capital administration.” And the CEO stated he doesn’t anticipate that pattern to vary any time quickly.
“I actually don’t view this cycle as a typical market cycle. I view it as a market correction,” he careworn. “We had been out deploying twice the capability on the casualty aspect just some years in the past that we deploy at this time. On the property aspect, it’s most likely a tenth of what it was throughout that very same timeframe. And I don’t see that altering anytime quickly.
“What I see amongst my very own firm and peer corporations is an amazing quantity of self-discipline in how they’re deploying capability, and the way they’re utilizing it in a way more considerate method than we did just some years in the past, for all the explanations [like] nuclear jury verdicts, social inflation, or simply odd inflation.”