Lexington like flying plane and fixing it at the same time: Levinson

There is still significant work required to execute the turnaround of AIG’s E&S platform despite the dramatic overhaul of its portfolio over the last 12 months, according to Lexington CEO Lou Levinson.

Speaking at The Insurer’s New York Insurance Forum last week, the executive said that the major remediation efforts at Lexington had been “like flying a plane and we’re fixing it at the same time”.

“We have so much more work to do on the portfolio. We did a tremendous amount of work in the early stages [on] risk selection, attachments, terms, limits and price. We attacked all those things and executed flawlessly and the portfolio is better than it was a year ago.

“But now it’s about refining it and figuring out what that portfolio should look like optimally down the road,” he commented.

As previously reported, the carrier’s drive to improve its profitability, which began in earnest at the beginning of 2019, has been one of the major catalysts of the significant change that has been seen in the wider E&S market, in terms of pricing and underwriting behaviour.

“It’s not a not-for-profit. This is actually a for-profit business, and so we attacked it. And we have been fixing the plane while flying at 600mph”

Lou Levinson, Lexington CEO

Commenting on the state Lexington had been in prior to its overhaul under new management, Levinson (pictured) said: “We’ve got this massive E&S portfolio. What we found was there were very complex risks, with very low attachments, with very big limits, and very wrong terms, very retail produced, very low priced, and losing money.”

“It’s not a not-for-profit. This is actually a for-profit business, and so we attacked it. And we have been fixing the plane while flying at 600mph,” he continued.

Against the backdrop of an E&S market that is growing at record pace, Lexington has seen relatively modest top line growth in the single digit range, with submission activity up 80 percent and new business 40 percent higher than a year ago.

But Levinson said those numbers don’t reveal the real story of what has been going on at the carrier.

Although premium volume is broadly in line with a year ago, “we weigh about the same but we’re eating a much better diet and will live a lot longer consequently”, said Levinson.

Every lever pulled

The executive said that Lexington took the biggest E&S portfolio in the market and pulled every lever on risk selection, attachments, limits, terms and pricing to remediate it.

As reported in January last year, the carrier also switched its focus from retail to wholesale and focused its sights on middle market business as it pivoted away from the large complex risk accounts it used to write.

The distribution switch was “dramatic”, said Levinson, and took courage for a company like Lexington to conclude relationships with retailers and focus its energy entirely on wholesalers.

Lexington also decentralised its underwriting out of Boston, restructuring field operations with underwriters in cities such as Atlanta, Chicago, Los Angeles, San Francisco, Houston, Dallas and Scottsdale to meet wholesale broker needs across multiple time zones and geographies.

“It’s been an unbelievably physically and mentally exhausting year and the execution has been flawless, and we couldn’t have done it without the help and support of the brokers that have sat side-by-side with us and delivered some very difficult and unpopular messages as we started to tackle some very systemic problems in our portfolio,” said Levinson.

“We couldn’t have done it without the help and support of the brokers that have sat side-by-side with us and delivered some very difficult and unpopular messages as we started to tackle some very systemic problems in our portfolio”

Lou Levinson, Lexington CEO

The results of the remediation efforts have been dramatic in terms of limits and pricing.

On AIG’s fourth quarter earnings call, its general insurance CEO Peter Zaffino said the response from the market had been “remarkable”, with strong support from distribution partners to Lexington’s repositioning.

He reported that Lexington casualty fourth quarter and full year 2019 submission volume increased 86 percent and 70 percent respectively, while the carrier reduced limits on its most volatile accounts by 67 percent in Q4 and 61 percent in the full year.

It was able to achieve rate increases of 28 percent in the quarter and 21 percent in the year while repositioning the casualty book.

In property, Lexington’s submission volume was up 41 percent for the quarter and 48 percent for the year.

It reduced in force limits by 19 percent in the quarter and 52 percent for the full year, while rates increased 32 percent in Q4 and 17 percent for the full year, at the same time as increasing the average deductible by over 50 percent in the year as part of the de-risking.

“We expect to see greater underwriting discipline and improving rate environment in the E&S market in the foreseeable future,” said Zaffino.