Podcasts
The Golden Age for E&S – set to continue?
The latest Voice of insurance podcast features Markel Specialty and focuses on US E&S lines, the largest wholesale market in the world.
The US excess and surplus lines (E&S) market is going through a boom, which continues to excite underwriting interest, among US insurers, in the London market and internationally. An unprecedented level of business flow and rate rises has produced something of a golden age for E&S, although for how much longer than can continue is a matter for debate.
The latest episode features a senior executive who has day-to-day visibility of the booming US E&S market. Wendy Houser is chief wholesale officer of Markel Specialty. She leads a team of around 400, writing a book approaching $3 billion in gross written premium in the largest wholesale insurance market in the world.
“I’m sure that you’ve heard the term ‘the golden age of excess and surplus lines’. And that stands true today,” Houser said. “The E&S market today is extremely strong, and we have seen multiple years of double digit growth.”
This continues to be the case amid so many underwriting uncertainties, she suggested, with the US admitted lines market lacking the flexibility of rate to place large, sophisticated and emerging risks.
“As we see things that keep emerging into the world that we live today – war, emerging technology, for good and bad, climate change, social inflation – we need to be problem solvers. In E&S we can have bespoke forms and we can do the rate analysis to make sure that we are charging adequate rates for the long term,” Houser said.
She was upbeat about the E&S market’s prospects for continuing to boom. “I see E&S continuing to be strong well into the future, because of the world that we live in today.”
There are some areas where she sees the market levelling off, with risks and rates still more or less in balance, such as professional lines business, challenging the market “to think about it differently”.
Houser added: “I don’t know that we have all the actuarial data that we need to say that it should be peaking. I would keep doing the portfolio management, using all the tools, to take a look to make sure that we are still getting an adequate rate in those areas.”
E&S property insurance has also reached something nearer equilibrium, she suggested.
“You see property with more capacity today, and maybe the rate slowing down, but it still has a trajectory of growth, and there’s still a need in the market to be able to handle more challenging risks,” she said.
Slowdowns in rate increases, or even level pricing, can dominate journalistic conversations, host Mark Geoghegan acknowledged, but in the longer term, “up is up”, and cumulative rises are still being banked by insurers.
The question of whether capacity between E&S and admitted markets is “secular or cyclical” has been discussed on the podcast before. Insurance cycles come and go, and the tendency has been for hard markets to lead to more E&S business, that returns to admitted markets once rates begin to soften – but with some suggestions that risk trends may break this cycle. Houser provided a view.
“We live in unprecedented times,” Houser said. “I’m probably in the camp of it being more secular than cyclical, based on my 25 years in the industry and the hard markets that I’ve seen.”
Severe convective storms, with “baseball-sized hail” in Texas, and destructive wildfires in the Rocky Mountains and western US states, are keeping the pressure on property business, and “homeowners insurance is doubling, if not tripling”, she suggested.
Such events will keep driving hard market pricing, she stressed, also noting current predictions for an active hurricane storm season for US wind risks.
“If we say that that market is stabilising, I wouldn’t say that anyone is saying that it’s soft. But if those things all hit at the same time, then you will see a change in the market once again,” she said, adding: “it’s definitely more secular than cyclical.”