Disciplined growth

By David Bull

May 27 - (The Insurer) - This week several hundred market executives will converge on New York City for our back-to-back E&S Insurer and Program Manager conferences and awards.

Both the wholesale and MGA/programs segments are arguably reaching a critical juncture, where profitably sustaining the record growth of recent years will require navigating changing market conditions.

External influences could also play a part in shaping the near- to mid-term prospects of the E&S market and broader US P&C industry, amid macroeconomic volatility.

The agenda for the E&S Insurer conference will explore a wide range of topics addressing how the sector can maintain momentum against a backdrop of escalating and emerging risks.

With its long track record of innovating to provide solutions for challenging risks, the E&S market should be well-placed to meet demand for coverage to protect businesses and individuals against these risks.

We expect many speakers, including opening keynote Tim Turner, Ryan Specialty CEO, to reflect continued optimism about the prospects for E&S carriers and wholesale brokers.

But the segment, like the broader industry, is not immune to the fundamentals of competition driven by demand and supply dynamics that have historically shaped the insurance pricing cycle.

Last month we reported on the effect that competitive forces in London, Bermuda and the US domestic market are having on E&S property pricing and terms, which appear to be entering the rapidly softening phase.

In one of our lead articles in this issue, we hear from Lloyd’s chief commercial officer and Americas CEO Dawn Miller about how the Corporation is closely monitoring pricing and any potential signs of over-competitive and ill-disciplined behaviour in the market.

She reports that at Lloyd’s, which is the largest writer of E&S business, conditions are holding “somewhat steady”, with underwriters prepared to not write business.

Earlier this month Lloyd’s chief underwriting officer Rachel Turk also talked about the potential to step in and implement constraints on large cross-class broker facilities in the market.

Turk was speaking at a press briefing following the Q2 market message, in which she warned that the Corporation would not allow large multiclass facilities to "drag down the market in the same way that poor management of MGAs did in the past".

"Poor management of coverholders could cause a problem; it isn't causing a problem yet, but let's make sure it doesn't. That's really the angle that we're taking; it's trying to be much more prospective than reactive."

Lloyd’s has made it clear it doesn’t want to return to the days of Decile 10, when drastic steps were taken to address underperforming lines of business.

In the current environment, signalling a willingness to step in may be a key force in curbing ill-discipline, but that responsibility will ultimately also fall on underwriters at carriers across the US domestic market.

There is plenty of empirical evidence (including the latest stamping office data as we report in the State of the Market section of this issue) to show that business keeps flooding into the E&S market via the wholesale channel.

That should provide carriers with some degree of pricing power if they can maintain discipline in the face of competition.

And there is also evidence that the market will act to address any concerning behaviour. Take for example the response from wholesalers in raising concerns about highly competitive behaviour from a facility being marketed by HISL out of London, which led to questions over its carrier and distribution relationships.

One of the E&S market’s greatest strengths is its ability to operate with more freedom and flexibility than the admitted market. By continuing to demonstrate discipline and self-policing, its practitioners can go a long way to sustaining its best ever era…