Excess and surplus lines


A SLICE OF THE PIE


Softening rates in the mainstream


reinsurance market have driven players to seek growth in alternative lines. Focusing on one of those lines—excess and surplus—Intelligent Insurer looks at new entrants seeking a part of the action and asks whether this market has the sustainability for increased capacity.


and surplus (E&S) market, which is worth around $37 billion of annual written premium—predominantly in property and casualty.


A “As in the rest of the world, reinsurers are seeking to replace lost reinsurance


          corporate/national and large commercial risks have lost rate over the past 18  up in rate at a time when catastrophe incidence has been very low, making the sector attractive,” says Chris Hardcastle, managing director, binding authority and facility division at Arthur J Gallagher.


However, with increased interest comes increased competition, which is both positive and negative for the line’s existing players, as Bernie Heinze, executive director of the American Association of Managing General Agents (AAMGA), explains.


“When a market attracts investor interest and capital that is always something that has good credibility and sustainability to it. But for the market practitioners, more capital forces competition to keep rates low.


“That’s good for the policyholder and people who have that type of


          However, a result of this is the encouragement of underwriting and innovation,” he says.


Heinze says that he is receiving telephone calls every week from new market,


alternative capital and various other new capital providers that are looking for ways to provide additional surplus capital into the E&S market place.


Hardcastle agrees. “Reinsurers, hedge funds, pension funds and other capital 12 | INTELLIGENT INSURER | Spring 2015


s market conditions remain tough within core lines of business for many reinsurers, gaining routes into new markets through strategic hires and new operations is a growing trend.


One such market that continues to gain traction is the excess


sources have seen excellent returns in the retro and reinsurance markets in the past nine years, prompting them to take greater interest in the primary market where writing this business through delegated authorities represents 


He also says that many reinsurers already have an existing primary insurance vehicle, or are in the process of creating one as a result of commercial necessity.


“At the same time as reinsurers are seeking to write greater volumes of primary business at low cost, so are MGAs seeking to access less expensive capital to support their business, so the two situations are converging with willing partners on either side,” he explains.


“MGAs are seeking to move their business from capital providers whose


expense ratio is seen to be high as a result of competing distribution— 


“Reinsurers tend to have a better operational expense ratio and by dealing with MGAs they can achieve a far lower cost of distribution.”


In March, XL Group expanded its E&S insurance team adding an underwriting manager to its newest product line, primary auto.


John Goodloe, president of XL Group’s E&S business, says that the   auto business.


Meanwhile, Ariel Re launched Ariel Specialty Insurance Managers, an E&S


property underwriting unit as part of a strategic initiative to grow its presence in the US E&S marketplace.


Heinze says that the market’s unique way of operating presents an attractive prospect to insurers.


 time when the admitted markets couldn’t support new business which didn’t have an adequate loss history.


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