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The Insurer in Full: Market access and the capacity quest

The ink is barely dry on the 1.1 cat reinsurance renewals (those that got placed on time) and it is already clear that one of the biggest challenges for brokers in 2023 will be finding sufficient cat capacity for clients at a cost which is economic.

If the E&S property market was frozen for at least part of the fourth quarter in the aftermath of Hurricane Ian, the thaw has begun as the treaty renewal outcome has finally provided some clarity for insurers renewing at 1.1 which in turn will allow them to make decisions around their own deployment of cat limit. It will also set expectations for those with renewals between now and the start of the hurricane season. The picture that is emerging, however, is no less concerning for buyers.

There are some exceptions, of course. For example in this issue we reveal that MGU Risksmith has secured additional capacity to support a build out of its E&S property book under newly hired former Hallmark executive Ravi Patel. But while welcome, incremental capacity will struggle to fill the void left by significant retrenchment elsewhere, notably at property cat heavyweight AmRisc.

We revealed earlier this month that the MGA told distribution partners it is reducing its available capacity per risk from around $300mn last year to $50mn in a move that will likely lower the overall probable maximum loss (PML) on the firm's book by up to 20 percent as it continues its portfolio optimization strategy.

Anecdotal evidence suggests that in London in particular the scramble for capacity is acute, as many Lloyd’s players have been forced to reduce or pull their support altogether from a number of US MGAs and other delegated authority relationships with meaningful cat exposure. Some of the relationships have been profitable over time for those capacity providers. But the squeeze underwriters are facing from surging reinsurance costs means that the economics are not always workable, and cat aggregate has to be more sparingly deployed. Wholesale brokers are continuing to work on new solutions to source additional capacity to deliver what their retail clients and ultimate insured need.

And retail broker reports in the New Year have laid out the difficult buying conditions for clients.

 

The future of distribution

So in this challenging environment where the ability of wholesalers to navigate a capacity crunch can be a difference-maker for retailers, it is no surprise that the timing of Willis Towers Watson’s move to RFP to further consolidate its wholesale broker panel has raised eyebrows.

The third largest global broker is also pushing a carrier panel strategy in the US under head of corporate risk and broking (CRB) North America, Michael Chang that is understood to relate to the use of admitted and E&S paper. Narrowing down wholesale relationships at a time of dislocation is certainly a bold move and goes against the received wisdom of keeping options move.

But while WTW’s potential move appears to be at the more radical end of the scale, it is emblematic of a wider reassessment of wholesale relationships and access to E&S capacity by retailers.

We reported last month that Acrisure is consolidating its wholesale relationships, for example. And anecdotal evidence suggests the two biggest global brokers in Marsh and Aon are looking at options to enhance in-house capabilities.

In a dynamic marketplace, it is quite possible that other themes will rise to the surface to dominate industry discourse over the next two months. For now though we are working on the premise that E&S Property and the Future of Distribution will continue to be key topics for the sector.

And to that end, both will feature in dedicated panel discussions at E&S Insurer’s upcoming New York conference on 22 March. As a publication only just putting out its third monthly issue, we are naturally still a little green and still developing our identity. But we are having no difficulty in attracting a stellar speaker line-up for the event, with speakers confirmed including Ryan Specialty’s Tim Turner, Markel’s Bryan Sanders and Amwins Scott Purviance.

For full details, scroll through this issue. The conference will be followed by an awards dinner to celebrate excellence and achievement in the sector, so please get those submissions in and we look forward to seeing you in person in March!

E&S

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