Where is the US E&S market headed?

Greg Hohman, CUO of Munich Re Specialty, was the latest guest of the Voice of Insurance podcast.

Greg Hohman is the Chief Underwriting Officer of Munich Re Specialty Insurance, which has been an area of “huge investment” from the world’s largest reinsurance group.

Munich Re Specialty North America is one of the four units in its global specialty arm, with a three-pillared strategy  of “expertise, stability and partnership”. The US business amounted to some €8bn of premium in 2023, planned to rise to €10bn in 2025, Hohman revealed.

With a headcount of 600, most of those people are based in the US, with four units. These include a public entity business and a North American programmes business. There is also a London binding authority, using coverholder relationships to underwrite US business.

“Last but not least is the newest of the four businesses within Munich Re Specialty North America is our excess and surplus (E&S) platform,” Hohman said.

He said sees specialty as consisting of “harder to place risks”, emphasising a strategy to provide a consistent presence in the US market, there throughout the spikes and troughs of capacity elsewhere entering and abruptly leaving, such as after Hurricane Ian in 2022-2023.

“Our E&S team in particular was launched in 2019 and has seen significant growth through the midpoint of 2024, open to all of the new products that we put in the market, something north of 20 new products that we’ve deployed over that time period,” Hohman said.

“E&S in general is thriving,” according to Hohman, with growth in recent years outpacing standard admitted US market business.

He cited increasing demand across the US E&S business, as more and more of those “hard to place” risks find a home there. This demand has now “somewhat flattened” in financial lines, he explained, while property has seen a “moderate increase in submissions”, but “a significant spike” in E&S casualty business.

Hohman said: “I’m speaking from Munich Re Specialty North America data. Part of that might be a function of our ability to just market be more visible in the marketplace, so our share of submissions might be outperforming some of the others. But no doubt, the overall industry is seeing all-time highs in terms of demand for E&S products.”

After the hard market peaks, rates have since “levelled off” now, he suggested, with carriers also offering higher policy limits. He resisted suggestion that rates were falling to any great degree, but rather “at equilibrium” and “keeping pace with trend”.

Some of this E&S boom has come opportunistically, he admits, with regulatory difficulties and other disruptive factors shifting some risks “cyclically” towards E&S, with the jury out on whether they stay within the market.

“That said, I think that the ability for us to attract more policyholders into the E&S space, where those policyholders want to stay here, because of the creativity that we bring, is absolutely increasing,” Hohman said.

The amount of consistent, recurring or renewable revenue is going up, and you never know when the next part of the market will get disrupted. As one line of business or one territory seems to have some resolution to where there were challenges, there’s going to be something else that pops up,” he added.

California property business, particularly for wildfire risk, has been a challenging market and an area of E&S potential that Hohman said his firm had been keen to innovate within.

“The commercial risks that are in elevated wildfire prone territories in the state of California end up having to place their insurance with the California FAIR Plan, which tends to be the market of last resort for some of those policyholders,” he said.

The FAIR Plan is a somewhat limited product offering, and bringing a more comprehensive solution to affected policyholders has been a priority, he emphasised.

“We created a commercial FAIR Plan wrap, which is essentially a ‘difference in conditions policy’ that wraps all of the coverages that you would typically get from a special lines property policy around the California FAIR Plan policy,” Hohman said.

Going live in the first quarter of 2024, demand has been high for this new product, he suggested.

Meanwhile, the well-publicised adverse trends in US casualty claims and insurers’ reserves being topped up for prior years mean that a focus on ensuring any rate rises on casualty business, however lucrative they may feel, are enough to keep pace with the risks and incoming and expected claims, he acknowledged.

“The critical thing for us is just to be selective, make sure we’re writing the right risks that we think are in the classes that fit the appetite where we want to scale, and that we’ve got the program structures and capacities that we’re comfortable with,” Hohman added.