Limit management still key in rehardening casualty market

By David Bull

April 30 - (The Insurer) - The E&S casualty market will continue to see compression of excess towers as underwriters remain focused on limit management in the face of escalating loss cost trends, according to Axa XL’s Tim Whisler.

Whisler, who joined the carrier as head of wholesale solutions from Lexington’s Western World earlier this year, was speaking on E&S Insurer’s “A market in uncharted territory” webinar earlier this month.

“With legal system abuse being what it is, capacity matters first and foremost, and attachment point matters tremendously.

“It all matters. Selecting the right risk matters, of course, but limit management really matters. And I do think you’re going to continue to see compression of excess towers, whether it used to be a lead 10, and then it was a lead five, and it’s gone down from there,” he observed.

He said that even in the higher excess layers, more carriers are focusing on quota share participation.

Whisler said that the ability of E&S carriers to be more flexible around terms and conditions has been a key factor in the segment’s outperformance versus the overall U.S. casualty insurance industry from a loss ratio perspective in recent years.

Christopher Lewis, head of E&S at Zurich North America, highlighted the effect escalating loss cost trends are having on society, in addition to the insurance industry.

“Loss cost trends on the casualty side are a concern and candidly when we look at social inflation and litigation abuse, it should be a concern for everybody,” he commented.

He pointed to U.S. Chamber of Commerce data that shows tort costs are now about 2.3% of GDP, which feeds through to consumers paying more than $4,000 a year additionally on goods and services related to this kind of litigation abuse.

In addition to third-party litigation, Lewis identified other drivers including joint several liability, venue shopping and phantom damages, and said the industry needs to continue advocating for right-headed reform at the state level.

The executive noted that the E&S market has performed better than the admitted market in this segment, aided by the freedom of rate and form it enjoys.

“Look at the industry data and you can actually see a differential between E&S casualty versus broader casualty. So the E&S industry is well positioned, but it doesn’t take away the fact that overall, we’ve got a societal issue with respect to litigation abuse that’s driving loss costs higher that we collectively need to get in front of,” he continued.

CREATING CASUALTY CAPACITY

Also on the panel, Amwins CEO Scott Purviance said that brokers are having to build towers of capacity with more and more carriers in response to the focus on limit management.

“It differentiates wholesalers, and where we’re really adding value (is) to be able to access a broad-based excess casualty market, for instance, and build those limits for the end buyer,” he commented.

Amwins this month launched an excess casualty sidecar through in-house MGA Special Risk Underwriters that will allow its brokers to bring additional capacity to placements.

The vehicle extends the wholesale and underwriting platform’s relationship with AM Best A-plus rated MSIG, sources said.

Speaking on the panel, Purviance said Amwins had also had to look beyond traditional carrier partners in search of capacity, emphasising that the company is not looking to disintermediate them.

“But in markets where there is change and uncertainty and disruption, you do have to look at avenues beyond just U.S. domestic (markets), whether it’s Bermuda, London, then building certain sidecar capacity,” he said.

He added that ILS and alternative capacity could potentially make a bigger play in excess casualty in the future, highlighting innovative developments such as building reinsurance-to-close mechanisms into such structures.