CEO panel: E&S poised for further hardening
The E&S market is poised for a further hardening while it is “impossible” that excess casualty underwriters are currently on top of loss costs given the continued impact of both social and economic inflation and jury awards and settlements that remain on the rise, delegates at the E&S Insurer Conference in New York City heard on Wednesday.
CRC Group’s Mike Brennan cited an industry colleague who described the casualty market as being “a two humped camel”, meaning the sector is between two cycles of hardening.
“The auto losses are not going down, the social inflation is not going down, [and] inflation isn't going down, or at least is plateauing,” Brennan explained.
While there was a sense that the surge in public D&O pricing some 18 months ago was the result of an opportunistic situation that would ultimately level out, a similar sentiment is not currently shared regarding the broader casualty market, with further pricing improvement therefore expected.
Berkshire Hathaway Specialty Insurance (BHSI)’s global chief operating officer David Bresnahan was also on the panel, and he said it was just a matter of when the umbrella, buffer and excess casualty markets will start to reharden.
“Far too often excess casualty underwriters are getting loss costs wrong,” Bresnahan stated.
“Everything you read and hear today is that we’re now back at pre-pandemic levels of settlements, losses, verdicts, etc,” Bresnahan, BHSI’s global chief operating officer, said.
“I feel like that might be a little bit of a false of security,” the executive stated, and explained that current loss data does not paint a full picture of the current claims environment.
The entire US legal system contributed to the information that dates back to 2019 – the last full pre-pandemic impacted year.
The most recent full year data is for 2021 and does not provide cross-country information. Bresnahan detailed how in 2019’s figures, the five boroughs of New York contributed 2,000 trials, whereas for 2021, that same region accounted for just 310 trials, highlighting the impact lockdown had on such activity.
“The current data is really representative of the southern states, most of the northern states are not really in there yet,” Bresnahan stated.
He also highlighted a recent wrongful death case in Louisiana where the plaintiff last week was awarded a $400mn verdict. The case referred to an event that took place in 2016.
“My point isn’t the size – although it’s depressing – my point is that…[the loss occurred] in 2016.
“So you have excess casualty underwriters pricing their business in 2017, 2018, 2019, 2020 and 2021 with the absence of just one loss which was a $400mn loss on a single fatality.
“When you spin that up with all the nuclear verdicts, it’s impossible for me to believe we’ve got loss cost figured out right,” Bresnahan stated.
Rate adequacy “a moving target”
Carlton Maner, the CEO of Axis Wholesale, said social inflation, economic inflation and the increased frequency of severity events all mean that rate adequacy is now “a moving target”.
“In the past pricing cycles were really triggered by major events. Today, I think it’s going to be a prolonged cycle, because of rate adequacy and the search for rate adequacy. That’s what we’re looking for,” Maner said.
“Insurers and reinsurers are striving to find that point where we can have sustained rate adequacy more than anything,” he added.
And as Matt Dolan, president of North America specialty and Ironshore for Liberty Mutual Insurance, highlighted, the “fundamental difference” between the current market hard pricing environment and others is that it has not been driven by a shortage of capital.
“It wasn’t a capital constraint,” Dolan said. “It was balance sheet fatigue. It was suboptimal results that had the market sort of wake up, and obviously experiencing some of the issues around social inflation and the impacts of climate change, and the like.”
As the market evolves, Dolan suggested the “monolithic cycle” that impacts all products to similar degrees at the same time has now “gone away”.
“I think that we're in a market of micro cycles that impact different products in different places at different times with different levels of intensity,” he said.
As examples, Dolan referenced public D&O which had a surge in pricing before it fell off last year, along with cyber which, after facing significant rate rises, has now seen those slow. In contrast, property rates remain on a steep upwards trajectory.
Amwins CEO Scott Purviance was adamant that “cyclicality in this industry isn’t gone”.
“Hopefully the peaks and troughs will be compressed,” he said.
“Twenty years ago carriers were less sophisticated and had less ability to understand their exposures - I think they're much better at it today. And so that compression of the peaks and troughs should be less. To buyers, I think that's a good thing.”