...but will fall short of the gains made by their US counterparts in 2019 owing to the restraint imposed by the Corporation of Lloyd’s.
Sources described the surge in E&S submissions as “unprecedented” as US market hardening accelerated rapidly from Q2 last year onwards, amidst a drawback in capacity from AIG and others.
London carriers, and by extension the wholesalers placing with them, can usually expect to pick up the overspill from the US at this point in the pricing cycle, as demand outstrips appetite from domestic E&S writers.
US wholesalers have registered surging top lines with 15-30 percent increases seen in the second half of 2019.
Their London counterparts will likely fall short of these levels when they file their 2019 accounts as the Corporation's crackdown on lax underwriting checked syndicate growth, with a knock-on effect on major London-focused wholesalers such as Miller, RKH and Ed.
London-based constraints
While London-based wholesale brokers have seen increased enquiries from the US, sources have reported a gap between the number of requests and the amount bound as brokers struggle to place as much displaced business into EC3 as in previous cycles.
Lloyd’s carriers had been steadily increasing their market share of E&S business, from 14 percent in 2005 to 23.6 percent last year, according to AM Best figures.
The ratings agency reported total US surplus direct premiums written in 2018 at $49.8bn, against total US P&C total premiums of $678bn.
However, market sources expect that the Lloyd’s E&S market share will contract meaningfully when figures are released for 2019.
One senior broking source cited a sentiment among US intermediaries and carriers that the Lloyd’s market was “closed for business” due to continued capacity constraints as the Corporation maintains a tight grip on top line growth.
“Lloyd’s underwriters can no longer fill their boots,” another source said.
The take-up of extra E&S business in London is also highly dependent on class, with brokers hard-pressed to place any business that falls into Lloyd’s portfolio review classes.
Those classes comprised non-US open market property D&F; cargo; non-US binder property D&F; yacht; aviation war; US open market property D&F; pro-rata property; overseas motor; professional indemnity; and general aviation.
The impact is also being felt in MGAs backed by Lloyd’s syndicates, where capacity is tight as the Lloyd’s remedial programme has put MGAs under pressure to prove to paper providers they are worth handing the pen over to.
Demand is increasing, particularly for large US fac cover in London as well as pockets of casualty such as umbrella and commercial auto, and select property classes such as cover for storm-exposed coastal buildings.
Broking sources said that while company market carriers had also revised their portfolios after several years of cat losses and casualty concerns, they were freer to take advantage of rising rates and the increasing volume of enquiries than Lloyd’s syndicates.
This has forced wholesalers to place a greater proportion of business with the company market where they can, with Zurich and newcomer Convex known to have capacity for US casualty.
US wholesale market
US carriers have given ample disclosure on the scale of increases in business flow to the surplus lines market via the wholesale channel.
AIG reported in its Q4 conference call that new P&C business transacted through its wholesale partners more than doubled in 2019.
Within Lexington, AIG’s E&S unit, the carrier reported full year casualty submission volumes up 70 percent (and 86 percent in the fourth quarter), while for property, the figures were 48 percent and 41 percent respectively.
James River, in its 2019 report, said it had seen a 27 percent growth in submissions in Q4 and 12 consecutive quarters of E&S rate increases up to December 2019.
The transition in the US market has been driven by remediation undertaken by underperforming carriers, a market-wide increase in loss cost inflation in casualty lines and two years of elevated hurricane losses.
As a result, US insureds have been unable to secure cover through the usual route of a retail broker and domestic carriers, pushing business to US wholesale brokers to tap into capacity elsewhere.
This has helped drive organic growth at US wholesalers.
Ryan Specialty Group’s (RSG) premium volumes were up 35 percent to $9.6bn over 2019 thanks to the boom in E&S business benefiting its wholesale platform RT Specialty.
RT Specialty estimates that across the market, non-admitted carrier business had increased to around 14 percent of all business by the end of the year, up from a rule-of-thumb proportion of around 10 percent.
Similarly, an S&P note from early December 2019 said AmWins had achieved year-to-date organic growth of 16 percent, while WR Berkley CEO Rob Berkley similarly noted “significant growth” in the carrier’s E&S submissions in Q4.
The combination of the rise in demand and constrained capacity has prompted a boom in E&S pricing.
Brown & Brown CEO J Powell Brown said in his firm’s Q4 conference call that pricing for E&S cat-exposed property was up between 5 percent and 20 percent over the period, while Lexington revealed property rates increased by 32 percent, with casualty up 28 percent.
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