Duperreault lauds robust E&S sector in “tightening” market

AIG CEO Brian Duperreault has praised the discipline of the excess and surplus lines (E&S) market as it has responded to business flowing back from admitted carriers by pushing up rate and driving improved terms and conditions.

Speaking at the S&P Global Insurance Conference in New York today, the executive said that the actions of his company and Lloyd’s had been a big driver of a transitioning commercial insurance market.

“Between us and Lloyd’s we have moved the market,” he said. “I’m not necessarily proud of it because there’s a reason we needed to do what we did. We had to fix a lot of things including taking outsized risks in terms of large limits where we weren’t paid for it. We threw those limits back in the market.”

Duperreault noted the market had responded by saying rate is needed instead of trying to absorb the business as it was.

“That has a very interesting effect, because then the surplus lines market starts to get a lot of business that went back to the admitted market. There is a cycle of back and forth,” said Duperreault.

“Right now, surplus lines is quite robust. Rates are up. So it is an interesting self-fulfilling thing here, where we threw it out of admitted and it ended up in the surplus lines area and it comes back with better terms and conditions and rates.”

AIG has realigned the approach its own general insurance operations take to the admitted and E&S markets.

”So it is an interesting self-fulfilling thing here, where we threw it out of admitted and it ended up in the surplus lines area and it comes back with better terms and conditions and rates”

AIG’s Brian Duperreault

It has repositioned its Lexington platform as an E&S, wholesale only carrier in the US, while its admitted AIG general insurance entities serve the retail distribution channel.

Overall, Duperreault said pricing conditions are good. “I guess people would describe it as a tightening market, no one wants to use the word hardening, he said.

Two kinds of rate increases

Duperreault commented that AIG is “getting two kinds of rate increases”. An indirect one from reducing the outsized risks in its portfolio and a direct one from the increasing prices in the market generally.

“We are seeing rate increases in every line I could mention with the exception of workers comp. Rates are above loss cost even recognising the increase in litigation, etc,” said the former Ace and MMC chief.

“We also have changed our portfolio. We have moved business out that we did not want to take, and that indirect rate increase is even more powerful to us than the loss cost increases we are getting. But we are getting both.”

He added AIG is taking a more cautious attitude towards workers comp as a result of the falling rates in that line.

Duperreault noted that insurance is needed now more than ever before. He referenced Dickens by saying it is the best of times and the worst of times. The worst because of factors such as increasing uncertainty across the globe, rising fear, a breakdown of trust, aging societies, technological risks and the threat of recession.

But he added: “We’re the risk business and risk is booming, so we actually are living in the best of times in a strange way. There’s no shortage of things popping up that we have to deal with whether it’s cyber, data privacy, climate change, you name it. Products are being developed as we speak.

“So I’m standing here feeling pretty good in miserable times.”

On the issue of cyber, Duperreault quipped: “When people talk about the silent or non affirmative cyber, I never liked saying silent because when it comes at you it will be screaming at you!”

Duperreault also touched on the rise of insurtech.

“There is a lot of talk about insurtech – what that means for us, are we threatened by it, are we going to be replaced by it, he commented.

“By and large, no one really wants to do what we do – which is take risk on a balance sheet that can handle it. They are all interested in getting in and out, and getting some returns on their numbers. As long as that occurs I think insurtech is more of a support to us than a threat to us.”