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Rate increases are slowing as new capacity enters excess casualty market: RPS panel

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Competition is back for excess casualty accounts, according to a panel of RPS casualty experts.

Speaking on webinar titled “A Look Into The Future of the Casualty Insurance Market”, RPS executives said that while renewals are still moving slowly, new entrants to the market are helping to slow the pace of rate increases, particularly for well performing risk.

“Over the last several months, we've been seeing two very different markets evolving in the excess world,” said Adam Mazan, head of RPS’s Pacific West region, during the webinar.

“The first is a fairly competitive market, on low- to medium-hazard accounts, in which standard markets are not only getting more aggressive on pricing, but also providing more capacity,” Mazan said.

“In a couple instances, we actually witnessed a standard carrier offering $25mn in a lead layer, which is not something that we've seen since 2018,” he added.

“On the other end of the spectrum, is a market targeting medium- to high-hazard accounts – accounts with $1bn or more in revenues, or with loss issues. In this sector, capacity can be scarce, pricing continues to increase and at rate levels and most would consider unsustainable,” he continued.

In 2022, Mazan said, it’s best to “expect the unexpected”.

“Results are going to be somewhat inconsistent from account to account,” he said.

Mazan posited that standard carriers are starting to come back in aggressively on low- to medium-hazard accounts because rates have finally risen higher than predicted loss costs.

“I think the disparity in pricing that we're seeing between the E&S markets and the standard markets is that the E&S markets are using higher loss costs in their models than the standard markets, which is why the E&S markets continue to push rate on their excess renewals and new business, whereas the standard markets appear to be undercutting rates.” RPS national casualty brokerage president Bill Wilkinson noted, however, that rates are not necessarily going to come down.

“We're going to continue to see rate increases in various segments of business in 2022. That's a given,” he said.

“There's a vast amount of new market entrants. Over the last 10 months, we've seen about 21 new market carrier entrants, and it's going to create a leveling effect, where the rate increases won't be as high.”

Adam Wood, RPS Southeast casualty manager, agreed. “The competition's back for accounts,” he said.

“In years past, you'd get a number or renewal number, and you really have nowhere else to turn, because all the other carriers were just kind of falling in line,” Wood continued.

“But now, there are a couple more carriers out there, that if you get a bad renewal or a bad number, you can leverage that a bit. I'm not saying you're going to get flat renewals all the time, but we do have other options as brokers.”

Nuclear verdicts

One area of concern is “nuclear” jury verdicts.

National casualty brokerage president Wilkinson pointed to a recent verdict, where a Texas jury awarded $352mn to the family of a paralyzed United Airlines airport worker. A van for an aviation fueling company struck the man from behind, leaving him paralyzed from the chest down.

Anti-corporate sentiment and social inflation are playing into larger jury awards and settlements, he said, and that is likely to be a key issue as courts reopen and backlogged caseloads begin to move. “As cases begin to be heard again, experts believe that the nuclear verdicts could be worse than pre-Covid,” Wilkinson said.

Mazan referenced a recent conversation with a carrier that told him they had some 3,000 claims come in from the start of 2020. One-third settled. “Two-thirds of them are sitting open on loss runs, with what they would consider inaccurate reserves, as the claimants and their attorneys have been waiting for the course to open back up to take the case to trial.”

“One this happens, it could have a “dramatic impact on loss costs,” he said, which in turn could impact the rate environment.

Sectors under pressure

Among the most challenged spaces are public entity and educational accounts, Mazan said. “I think this is going to be a struggle in 2022 due to the lack of carriers willing and able to offer terms in the space and or the ability to offer terms with coverages desired and/or required by the insureds.”

“Law enforcement and abuse claims continue to plague the public sector, while abuse coverage, athletic participants coverage and educators’ legal liability continue to be hot topics in the educational world,” Mazan said.

“Most educational institutions will probably struggle to score more than $50mn of abuse coverage in 2022, and of that $50mn, they will most likely have part of the capacity on an occurrence trigger, and the remainder of the capacity on a claims-made trigger, which presents its own set of challenges.”

Another area seeing challenges is the habitational world, he said. “One claims adjuster mentioned that the average defense costs of a habitational claim are 50% of the total incurred, whereas the average cost across all other sectors is closer to 20%.”

In the construction casualty market, meanwhile, rates continue to firm due to social inflation, including nuclear judgements, third-party litigation and higher medical costs, said Sara Wirtz, casualty leader for RPS’s Chicago region and the national environmental liability practice leader.

Nevertheless, she said that contractors are optimistic about new projects coming on board following passage of the $1tn federal infrastructure bill, which will put $110bn into new road, highway and bridge projects, along with rail construction.

However, “we are still faced with increased cost of materials and challenges within the supply chain,” she said. “That is causing projects to take longer than anticipated to reach completion.” The labor shortage has also hit the construction industry, she said, raising concerns around subcontracting.

In the energy sector, the rebound in oil prices is pressuring the insurance marketplace, said Grant Bryant, senior vice president of energy and environment. The boom-and-bust business is booming again, with the number of rigs in operation rising, drawing new companies into the industry.

“We’re on trend for a lot of activity,” Bryant said. Primary rates have been relatively flat for the better half of the year,” he said. He expects minimal rate increases – from 2% to 5% on the primary.

“Where we're seeing a lot of pain is actually coming in on the excess aspect,” he said. “Capacity is actually decreasing, or we're putting more and more layers out there to get to contractual obligations of many of our clients. And you know, the elephant of the room as always – excess trucking.”

Wood, the Southeast casualty manager, said the excess auto space has seen some cooling off thanks to 10 market entrants counterbalancing the premiums carriers have charged the last few years.

“There is no doubt this new competition is good for your insureds,” Wood said.

“In talking with management on many of the carriers, the word to the underwriters is to focus on renewals, be selective and careful on how much work to push. This is radically different message than in recent years. Double digit increases on good performing risk are hopefully a thing of the past,” he added.

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