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The E&S interest rate increases as premiums rise



Surpluses and surplus insurance buyers are still struggling with interest rate hikes after several years of sharply rising prices, but the rate of increase has slowed, even as more companies flow into the sector.

Among the lines that are particularly hard hit are property insurance, including Florida condominiums; cyber responsibility; and climate-related coverage. However, the ultimate effect of the COVID-19 pandemic is unknown (see related history).

At the same time, mergers and acquisitions and capital investments in the sector continue (see related history).

Surplus premiums reported to the U.S. stamp stamping and service office surplus lines amounted to $ 24.04 billion in the first half of 2021

, an increase of 21.9% over the previous year, said Kansas City, Missouri-based Wholesale & Specialty Insurance Association in July.

Overall, the percentage increases are in high-single to mid-teens numbers, says Eric Blecker, Hartford, Connecticut-based president of Northfield Excess & Surplus Lines, a Travelers Cos. Inc. unit.

David Bresnahan, vice president of Berkshire Hathaway Specialty Insurance Co. in Boston, said that while the market for surplus and surplus lines "has slowed down a bit and the pace of change has slowed, it is still an uneven and sometimes challenging market. "

The surplus market is likely to see double-digit premium growth next year," he said.

"Right now, I would say that the market is relatively stable and comes from two and a half to three years of strengthening," capacity reductions and portfolio restructuring in the industry, "said Cliff Hope, property manager for Lexington Insurance Co., a unit in American International Group Inc.

Lexington, by far the largest surplus lines insurer, is ranked fifth largest this year (see ranking). Lou Levinson, Lexington's President and CEO, said in part in a statement that the insurer "has focused its portfolio on wholesale mid-market operations in a strategic pursuit of profit before premiums and reduced volatility while improving margins."

"The market is fierce, and it continues to harden as we somehow struggle through this year," with the challenges posed by the pandemic and other mitigating circumstances, "said Duffy Koller, Chicago-based head of AmTrust Financial Services Inc. .:'s surpluses and surpluses

However, interest rate increases are moderate. "Prices are still rising, but not as significantly," except for cyber, says Christopher J. Cavallaro, CEO of Jericho, New York-based wholesaler ARC Excess & Surplus LLC.

Mr. Hope said policyholders in some cases are increasing detentions to compensate for the increased pricing.

However, observers say that with already reduced capacity, even with a slower price increase, policyholders can pay more for their coverage.

As is usually the case when prices in the allowed markets tighten up more business flows into the surplus and surplus market, which has freedom in pace and form, observers say.

The changing risk appetites of licensed insurance companies are the dominant driver of increased excess premiums, says David Nelson, Scottsdale, Arizona-based senior vice president of contract and program guarantee at Nationwide Excess and Surplus.

AIG has gone through a process of moving companies into Lexington in cases "where we think it belongs," Hope said.

"Like most of our competitors, growth has been almost unparalleled and we are very popular right now," said Joel Cavaness, President of Rolling Meadows, Illinois-based Risk Placement Services Inc., a unit of Arthur J. Gallagher. & Co.

"There has been a withdrawal of the assumed and standard markets that has allowed E&S to fill that gap," he said.

The surplus and surplus markets are driven by both a contraction in supply and increased demand, says Dave Obenauer, CEO of the wholesaler CRC Group in Mendham, New Jersey.

He said that the shrinkage in supply is driven by losses from factors such as disasters, low interest rates, the pandemic and the so-called social inflation as a result of higher court awards and settlements. This has led the insurance companies to reduce capacity and to an increased demand for coverage of surplus and surplus lines.

Alex Bargmann, CEO and co-founder of Pathpoint Inc., a San Francisco-based digital surplus and surplus of brokers that focus on small account companies, said: companies they are trying to place that they might have been able to place in the allowable market in previous years.

At the same time, surplus and surplus insurance companies are introducing pandemic-related exceptions and sublimits.

"Everyone's a little more careful in their wording and be more restrictive towards exceptions to protect themselves," says Cavaness.

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