By Paul G. Smith, Corporate Senior Vice President, Carrier Relations, H.W. Kaufman Group
The Property & Casualty (P&C) insurance marketplace continued its momentum from the first half of 2020 into the third quarter showing no signs of retreat. The Burns & Wilcox Q2 2020 Property & Casualty Market Overview was packed with information on overall market conditions, new capacity, consolidation, and of course COVID-19. This report will build on the themes and content of our inaugural P&C Market Overview, providing updates on earlier topics, new developments, market trends and more.
As stated in last quarter’s report, Q2 was unprecedented from any vantage point, with the U.S. Excess and Surplus (E&S) insurance marketplace arguably impacted to a greater extent than any other part of the industry. Several contributing factors include:
- When new risks emerge, the E&S marketplace is first to develop solutions, with 2020 providing no shortage of opportunity
- Business continued to migrate from the admitted marketplace to non-admitted platforms
- The development of new products to address evolving risks, including but not limited to pandemic-related coverages
WSIA & CIAB ANNUAL CONFERENCE TAKEAWAYS
Further, following many meetings with Carriers and other capital providers during both the Wholesale & Specialty Insurance Association (WSIA) Annual Marketplace in September and the Council of Insurance Agents & Brokers (CIAB) Insurance Leadership Forum in October, the messaging was consistent.
- Carrier reliance on third party data and information to supplement what is received directly from brokers and insureds will become more commonplace. We anticipate Carriers will challenge both brokers and clients alike to provide more comprehensive data so they may more accurately underwrite risks.
- A flight to quality is apparent in utilization of technological tools to improve efficiencies and create better user experiences for all parties including Carriers, brokers and insureds alike. The industry is demanding greater reliance on digital engagement, trading, and interface among its partners.
- Evolving risks such as cannabis, CBD, vaping, drones, cyber, and surveillance were commonplace topics in most Carrier meetings. Of course the unfolding developments surrounding the pandemic and how the industry will respond to that evolving risk remains to be seen. In all likelihood it will not be addressed in earnest until a vaccine is formally introduced and the full extent of current claims and related litigation is better known.
- With the current state of the insurance market, many accounts are being shopped which in turn has Carriers becoming increasingly selective on what they choose to underwrite. A thorough and timely submission is essential, as Carriers are managing their resources carefully and generally will not entertain last minute or incomplete submissions.
- Most Carriers shared that rate increases thus far have been sufficient enough to outpace loss costs, however, many of these meetings took place prior to the many natural catastrophes that ensued in the subsequent weeks. Stay tuned.
- Despite new capital coming into the marketplace, this new capacity does not appear to be influencing incumbent markets’ decisions to continue their march toward rate improvement and sustainable terms & conditions.
RATE
Hard market conditions that have prevailed over the past 18-24 months show no sign of slowing with all major reinsurers and insurers maintaining their assessment of the market’s pricing going forward. The general consensus is that rates will certainly continue to rise well into 2021 with some industry executives predicting perhaps further. The abundance of Q3 catastrophes, as well as the ongoing uncertainty surrounding the pandemic, continue to fuel that outlook and the expanding E&S space.
CAPACITY
Unlike other hard markets that had elements of similarity in breadth and duration, this one appears different in that capacity is not scarce. Of course Carriers are often reducing the amount of limit they are willing to deploy on any given risk, however that is the result of tactical decisions surrounding return on investment and not due to an overarching shortage. Generally speaking, insureds who are not securing total available global capacity on their risk should not be the least bit concerned, only those who buy “market available” need be concerned.
TERMS & CONDITIONS (T&C)
As reported in our Q2 overview, the industry became rather lax regarding policy terms and conditions as they were not only consistent year over year, but generally speaking not much different among insurers. That has significantly changed which we applaud as policies should be tailored where allowable to address the risk profile ensuring coverage in the event of a covered loss. As stated elsewhere in this report, the lack of or inclusion of a Virus exclusion has swayed some court decisions relative to the application of Business Interruption coverage under a standard Property policy as it relates to recent COVID-19 related losses. That clause alone, often overlooked will arguably define the platform relative to claims with similar attributes. Point being, terms and conditions are vitally important to any contract with greater scrutiny being applied as appropriate.
COVID-19
Government-Sponsored Pandemic Backstop:
Lloyd’s CEO John Neal recently stated he is “not optimistic that any of the proposed government-backed pandemic reinsurance proposals that are in the works will get off the ground.” He further opined “Irrespective, the industry has an obligation to continue pursuit of solutions and keep the discussion alive.”
Meanwhile, Munich Re Chief Underwriter Stefan Golling has taken a slightly contrarian approach, pointing to Business Interruption (BI) losses occurring almost simultaneously across many sectors of the economy. “They are not insurable by the private sector alone,” Golling said, reiterating the need for government-backed solutions to cover pandemic losses. “Insurers will need to assist with risk assessment as well as organize its distribution and claim settlement.”
No doubt this will be a major topic of discussion and industry opportunity to create a sustainable product that answers the call from the global community of business owners, corporations, public entities, and individuals. We are monitoring this evolving topic as Carriers, brokers, and governments address how to handle subsequent events of similar nature.
Business Interruption:
Cincinnati Financial was dealt a blow mid-October when a North Carolina court granted partial summary judgement to restaurants that sued the insurer for COVID-19 BI losses. Cincinnati Financial has been a major focus; reports indicate its standard market property policies do not contain a specific virus exclusion, unlike the majority of other insurers. CEO Steven Johnson has confirmed that they plan to appeal the ruling which is being watched closely as a meaningful shift in U.S. COVID-19 litigation.
Continental Casualty (CNA) recently had opposite results from a U.S. District judge in Alabama presiding over a suit brought by an optometrist office alleging BI. In this case the judge stated, “Plaintiff’s loss of usability did not result from an immediate occurrence which tangibly altered its property.”
We anticipate a continuation of varying verdicts dependent upon jurisdiction, underlying claim details, policy language and public pressure. We will keep an eye on developments within this fast paced area and report back with updates in subsequent Market Overviews.
Q3 CARRIER EARNINGS
Insurance Carrier earnings reporting is in full swing with early reports from bellwethers such as Travelers, W. R. Berkley, Munich Re, Argo and more. A mixed bag of results with some margins significantly decreasing while others were in line or exceeded estimates. The divergence is primarily attributed to COVID-19 losses as some took significant reserves earlier in the year, while others took a more nuanced wait-and-see attitude. Of course Q3 reporting traditionally includes the bulk of natural catastrophe losses primarily associated with named storms. Similar to other 2020 atypical events, exacerbating this particular quarter was an extraordinarily active hurricane season with more named storms coming ashore in the U.S. than any previous year. Further complicating this quarter, as if COVID-19 and natural catastrophes were not enough, are the raging U.S. wildfires.
Despite these headwinds, Carriers by and large are withstanding the barrage through a combination of rate adequacy, selective underwriting, spread of risk, and prudent structuring of reinsurance. This challenging Q3 has only underscored the momentum that has developed since 2019, with insurers and reinsurers mandating underwriting profitability through close management of rates, terms, conditions and spread of risk. The current marketplace environment has sustainability unlike any in recent memory, so we fully expect Carriers to continue to seek returns to meet these demanding requirements.
Our own subject matter experts have also weighed in, sharing some interesting marketplace insights as follows:
- Adrian Smith, Managing Director, Burns & Wilcox Brokerage, Chicago: “Relationships with Carrier partners are more important than ever. Sometimes last minute opportunities from a retail client can only be secured in this marketplace through personal relationships, as underwriters are often too busy to consider last minute deals.”
- Jim Lynch, Vice President – California Brokerage, Burns & Wilcox, San Francisco: “Complete submissions that are presented well in advance of the effective date have always been ideal. However, now with new and unusual exposures to deal with – such as communicable diseases – combined with other challenging scenarios – such as rebuilding excess towers late in the game – brokers need to anticipate and prepare for underwriters’ questions in advance. Brokers need to communicate with their clients effectively so they can quickly pivot and give their underwriters the specifics and assurances needed to proceed toward a quote.”
- Bonnie Steen, Vice President and Associate Managing Director, Burns & Wilcox, New Orleans: “The market is changing rapidly in CAT prone areas. With Louisiana being in the storm cone seven times this wind season, Demotech companies are seeing reinsurance costs rising and London aggregate shrinking. Agents will need to laser focus their efforts to secure market availability.”
NEW MARKET ENTRANTS
Capital coming into the P&C marketplace continued the momentum that started in Q2 with new start-ups, expanded appetites, and scale-up companies. These trends have some similarities to earlier start-up waves that followed major economic events in 2001, such as: the dot-com crash, a very sustained soft insurance market, and of course 9/11. In this wave, however, the uncertainty comes during a global pandemic on the heels of major catastrophes, a strengthening dollar, a market meltdown, and rising equities. Notable industry veterans have commented that these new entrants will have little impact on pricing momentum, suggesting yet again that disciplined market conditions will continue. While some of the new capital may not have the legacy reserve concerns of incumbents, they will still face similar challenges from record low interest rates, a lack of experienced underwriting talent to meet demand, and social inflation.
New Updates from Q2 2020 P&C Market Overview:
- We can confirm that the start-up announced in our last Market Overview, of industry veterans Dinos Iordanou and Greg Hendrick, will be known as Vantage Risk. Further development for Vantage is their recruitment of Jack Kuhn as CEO of Global Insurance (formerly CEO of Sompo and Endurance).
- Fortegra Financial Corporation is the latest insurer to target the booming E&S market with the formation a new subsidiary Fortegra Specialty Insurance Company, to be domiciled in Arizona. They anticipate the new subsidiary will commence underwriting by year end.
- Inigo Limited, the start-up lead by Richard Watson, former Hiscox CEO, has agreed to acquire Lloyd’s MGA Starstone Underwriting Ltd. Ed Noonan, former Validus CEO, and others are reported to have bought into Starstone U.S.
- Jonathan Ritz, another former Validus executive, is reported to be working with TowerBrook Capital Partners on a bid for U.S. specialty insurer ProSight.
H.W. KAUFMAN GROUP – COMPANY SPOTLIGHT
RB Jones Marine:
RB Jones Marine is sailing smoothly into its second year following its maiden voyage October 1, 2019, binding its first policy. One year later, they have written nearly 700 policies and have billed premiums of more than $20 million. An amazing first year accomplishment, and one of which we are all proud, as the exclusive Managing General Agent for ProSight’s Marine Solutions and Excess Energy Products.
The first year focused on Commercial Marine and Excess Energy with products such as:
- Commercial Hull and P&I
- Hull Builders Risk
- Hull War Risks
- Ship Repairers Legal Liability
- Marine Terminal Operators Legal Liability
- Marine Contractors Legal Liability
- Maritime Employers Legal Liability
- Excess Liabilities up to $25 million in capacity
- Offshore Excess Liabilities for Oil and Gas lease operators, drilling contractors and exploration/ production companies
As to the state of the marine market, it can be summed up in one word, “uncertain,” according to RB Jones Marine Managing Director Mark Engel. He added, “Today’s marine industry is facing some tough challenges.” Globally, reports show that most lines of marine business have been unprofitable for the past four years. Local results have been no better. This has led to a massive reduction in the capacity provided by insurance Carriers. Brokers and agents are forced to redesign entire insurance portfolios due to some of the larger players exiting the business or cutting back their lines. Those underwriters who remain are addressing their portfolios and reviewing rate adequacy, expenses, terms and conditions, and deductible levels. RB Jones Marine brings stability to agent partners in these uncertain times. Capacity can fill holes in programs or offer competitive alternatives.
In June 2020, RB Jones Marine partnered with Atain, A-rated insurance company, to launch its newest product, Ocean Cargo Stock Throughput, to handle all the needs of importers and exporters. “We are bringing new capacity into a market that has been in turmoil for the past 36 months,” said John Gambino, Underwriting Manager, RB Jones Marine. Gambino joined RB Jones Marine in July 2020 and will play a pivotal role in expanding the RB Jones Marine cargo business. “To date, we have provided many affordable and competitive options to brokers and agents with limits up to $10 million for Ocean Transit, Inland Transit and Warehouse Storage.” The proprietary policy form available exclusively through RB Jones Marine, has the ability to write 100% of a risk or quota share.
Other capabilities and contact information can be found at www.rbjonesinsurance.com.
CONCLUSION / SUMMARY
We are positioned to lead our clients through this difficult marketplace with an unparalleled global structure of organizations including our Binding Authority, Brokerage and MGA operations as well as our exclusive insurer Atain and related service companies. These unprecedented times, while personally challenging, underpin exactly why H.W. Kaufman Group’s combination of companies was created under a family ownership structure. We are unmatched in our ability to assist clients with hard-to-place commercial, personal and professional coverages through our multitude of binding agreements and open brokerage arrangements. We understand our role and have worked tirelessly in: recruitment of talent, adding more than 150 new associates this year; development of exclusive product offerings; entering new markets; and expanding the scope and breath of our in-house insurer Atain. We have also worked to elevate and adapt many other services under our umbrella of companies, including premium financing, inspection/audit services and more. We are prepared to face today’s ever-evolving landscape with a global team that is well organized and connected to meet the challenges of this marketplace.
We appreciate your support, commitment and trust in assisting you with your wholesale and specialty insurance needs.
Disclaimer: The above information has been prepared solely for the purpose of sharing general information regarding insurance and business practice management issues. These are just our opinions and are not intended to constitute legal advice or a determination on issues of coverage.
