Summer 2013
L O C K T O N C O M P A N I E S
MARKET INSIGHTS,
U.S. EXCESS CASUALTY
The current excess casualty insurance market is a case study in opposing market forces. While the number of markets competing for business in this space is the most in recent memory, adverse loss performance, particularly for auto liability combined with low investment performance, has created a firming in the marketplace. It is an environment wrought with both challenges and opportunities. It is an ideal time for a more strategic approach to the excess market.
In the first quarter, excess casualty rates increased on average by more than 5 percent, according to MarketScout. However, the true increase is likely greater as a consequence of higher attachment points. Rate increases were greatest for clients in the transportation, energy and construction industries.
Sensitivity to risk profile and loss experience continues to gain momentum. Companies with a below-average risk profile are the recipients of higher percentage rate increases.
Opportunities for clients to outperform the averages or reduce cost do exist. Most frequently, cost decreases are the result of an
It is an environment fraught with both challenges and opportunities. It is an ideal time for a more strategic approach to the excess market.
STATE OF THE EXCESS CASUALTY MARKET
By Stephen Brown, Eric Silverstein, and Jonathan Stokes
EXCESS CASUALTY HEADLINES
BERKSHIRE HATHAWAY ANNOUNCEMENT MAY CHANGE THE COMPETITIVE LANDSCAPE WHAT TO DO WHEN BIG LOSSES OCCUR
By Cindy McClain and Lee Brading
include the use of a buffer layer market, an increased primary attachment point, or the use of new or newly inspired markets. Swiss Re, XL, Allied World, Allianz and others have taken a renewed interest in writing lead excess business. We also see an increased appetite among excess insurers for niche business such as commercial real estate, financial institutions and other shorter tail risks.
One of the more interesting developments is the conversion of several excess and surplus insurers into mainstream retail insurers. With growth from writing shorter-limits, higher-hazard business, there is a desire to use their capital to round out their book of business. Success from profitably underwriting an excess and surplus book is being parlayed into an opportunity to write larger-limit, less hazardous business. Companies such as Axis, Markel, Navigators and Endurance are a few more well-known names that are adopting this strategy.
From a coverage perspective, insurers are experiencing increased requests for manuscripting. Not only are shaving of limits requests becoming more prevalent, but broadening of coverage related to privacy and social media are common. We expect an increased focus on the impact of changes resulting from the utilization of the
Changing attachments points can also create an arbitrage opportunity. In a recent example, a client saved 15 percent in combined primary and lead umbrella cost by moving from a $1 million to $2 million auto liability attachment.
TRENDS
Global market conditions mirror that in the U.S. with increased attention paid to attachment points. Incumbent lead markets are seeking high single-digit increases. Frequently, the increases on the lead are reduced at higher layers within the excess tower. Opportunities to realize savings exist for companies with better-than-average risk profiles or by introducing one of an expanding number of buffer markets.
Excess capacity remains plentiful. Limits of upwards of $1 billion can be structured using the major global platforms of London, Bermuda and Dublin. However, there are several notable exceptions, including life science, pharmaceutical, and medical products, where capacity is restricted with underwriters performing a thorough due diligence aligned to the capacity deployed.
More recently the energy sector has been added to the
“exceptions” list for total available capacity. Underwriters have become more watchful of total limits deployed, particularly for drilling contractors and pipeline operators. Recent developments that are fueling this watchful approach include the BP/Transocean appeals court ruling.
Lloyd’s syndicates such as Aegis and Aspen have taken an increased interest in short lead placements for more difficult to place
products’ risk. In particular, in the energy sector, the consortium approach is becoming more popular, several insurers participating on a short lead. Auto buffers remain challenging with the majority of the market only doing so on an “aggregated” basis.
A new entrant into the casualty space is the Lloyd’s syndicate Apollo, which will focus on lead and excess business. The syndicate
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EXCESS CASUALTY HEADLINES . . .
Navigators Insurance has rapidly expanded its excess
operations staffing offices in major markets with an impressive group of underwriters. Peter Burns, formerly of ACE, is leading their efforts. Specific areas of emphasis include umbrella placements for short tail risks and higher excess capacity. Navigators has agreed to specific modifications to their policy form on behalf of Lockton. We expect Navigators to introduce a broadened form in the fall.
Swiss Re will offer “shaving of limits” via endorsement subject
to underwriting approval. We expect the shaving of limits endorsement to be introduced in June.
Axis has opened retail operations that include the ability to write
excess of miscellaneous professional liability coverage. We expect Axis to be a growth market as they look to balance their book of business. Tom Ross is leading the development of the Axis retail offering.
Great American (GAPRIS) is working on the release of a new
policy form providing broadened terms with greater adaptability. Lockton will take part in critiquing the new form prior to its release.
Endurance continues to move aggressively to expand its
operations under the leadership of Doreen Miller. Several months ago Endurance hired several well regarded underwriters from Starr’s California operations. More recently, the company acquired the Atlanta-based Alterra team. Endurance has allowed for direct access to select retail markets. We expect Endurance’s underwriting appetite to expand as the company builds a solid basis.
underwriters to operate out of the London platform
Argo Re London Adrian Green hired as a senior casualty underwriter (formerly XL London)
Torus London Neil Smith hired as a senior casualty underwriter and Tina Lam as an underwriter
(formerly XL London)
Starr Indemnity London Leanne Bellows hired as casualty underwriter (formerly XL London) AIG Cat Excess Bermuda David Porter hired as senior casualty underwriter (formerly ACE Bermuda)
Endurance Bermuda Shannon Totten promoted to the position of casualty practice leader
XL Bermuda John Best returning to XL Bermuda as senior casualty underwriter (formerly XL U.S.)
taking over from Kim Reed who is relocating to XL Atlanta
ACE USA Marybeth Diffley has been appointed as COO of excess casualty. Ms. Diffley hails from
AIG, where she served as excess product line leader. She will report to Carol Laufer.
BERKSHIRE HATHAWAY ANNOUNCEMENT MAY CHANGE THE
COMPETITIVE LANDSCAPE
On April 26, 2013, Berkshire Hathaway shocked the insurance community with the news that five of AIG’s top executives would become part of a start-up excess and surplus lines insurer. The core management team includes Peter Eastwood, Sanjay Godhwani, David Bresnahan, Dave Crowe, and David Fields.
Unlike most start-ups, the company will have the advantage of writing on National Fire & Marine surplus lines paper that carries an A.M. Best Rating of A++. The company will have $25 million plus of net capacity. Initially, insurance will be written on a nonadmitted basis until all filings are completed. They have already bound several pieces of new business and are staffing for growth.
David Bresnahan is leading the company’s excess casualty practice. Offices have been opened in Boston, New York, Chicago, Los Angeles, and Atlanta. There is a separate operation in London staffed by former Gerling personnel. We expect that operation to evolve but it is primarily participating
task force to effectively access Berkshire Hathaway. Members of that task force include Michael Campo, Vince Gaffigan, Marjorie Hughes, Debbie Goldstine, Mark Nieman, Matt Payne, Stacy Seaberg, Jonathan Stokes, and Dirk Van Heyst.
At this point, all business is being written on a simple excess follow form policy. A draft umbrella policy will be ready in the next few weeks. There are plans to introduce claims made and integrated occurrence forms. They have established a punitive wrap facility and are open to MFJ wording.
Berkshire Hathaway’s greatest strength is likely to be in writing buffer layers for trucking, large fleet, and difficult products exposures. We expect Berkshire Hathaway to
challenge the buffer markets with greater capacity and superior financial strength.
The healthcare platform is being developed separately.
Pharmaceuticals, Rail, New York City Contractors, and Invasive Medical Products are unlikely to generate interest.
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WHAT TO DO WHEN BIG LOSSES OCCUR
It started out like any other morning. Then I turned on the TV and everything changed . . .
Overnight, my client had suffered a tragedy, an event that dominated the national news. What horror. Panic set in. I hurriedly located my phone and found what seemed to be thousands of e-mails. My anxiety level peaked. Quickly gathering myself, I did what any good Account Executive would do—I called my claims consultant. We set out a plan of action to help manage this disaster, and the next few days would be a blur of activity and series of lessons learned that will live in our minds forever.
Despite what excess casualty underwriters would have us believe, we soon found that these events are extremely rare and a possible liability limits loss is not something that many insurance professionals have actually experienced. While this is fortunate, we realized there is not a lot of experience upon which to draw. As a result, this is our attempt to share our lessons learned in the event your client experiences the unthinkable. The first few hours after a catastrophe occurs are critical:
Safety First! Reach out to your client to let them know that you are aware of the situation. Ensure that people are safe and that the premises are secure. Reassure the client that Lockton is ready to assist as needed and formulate a plan to engage. Inquire whether the risk management team has alerted senior management and confirm that they want you to handle notification to the carriers. Further, recommend that the client has an attorney on-site to manage communication, support affected personnel and retain evidence. If warranted, recommend a public relations firm to manage the response to the media.
Coordinate! The most effective thing that you can do is coordinate the resources available to your client. Advise the insurers, both underwriting and senior claims management. Create a contact matrix and arrange group conference calls to update all underwriting/claims personnel so that each entity is not contacting the insured directly—have an attorney representing the client on the calls in order to maintain privilege.
Share the contact matrix with necessary participants so that each contact has access to the same information (conference call announcements, e-mails, updates, etc.). Specifically request that the insurance carriers and/or third-party administrator restrict access to the claim file to ensure information is not inadvertently disseminated to an unauthorized party. Advise your client to secure all documents and information such as schedules, inventories, incident reports and surveillance footage.
Coverage! Review the policies to be sure that the loss is covered and look for sublimits and additional coverage that could be triggered (workers’ compensation, employee assistance program, property, crisis management fund). Advise the risk manager to consider purchasing retroactive coverage to provide additional limits if needed or additional limits that exclude the loss but provide coverage for other potential losses during the policy term.
Managing the next few weeks will be a struggle but the activity will subside. Although every situation is different, below are a few items to discuss with risk manager:
Does senior management need to be present on the scene? What interaction, if any, is necessary with the first responders?
Should the employee assistance program be engaged to provide support such as grief counseling? How will this event be addressed on social media?
How will you treat the victims (funeral services, travel expenses, mortgage assistance)? Do remediation work at night in order to reduce attention
Restrict access to electronic devices on site (no cell phones during remediation)
Make client aware of regulations regarding claim notification and required acknowledgement by carrier
Help the client/third-party administrator allocate payments to available coverage—for example, do not use the crisis management fund to pay legal bills that will be paid as a part of the casualty claim or use the property insurer to pay for the fence to secure the premises.
The best advice we have for you is to know the entire carrier service team. Tensions will be high after this type of loss. Fortunately, we had established relationships with the primary and lead excess underwriting and claim teams. To our amazement, those carriers were reaching out to us to offer assistance, while other carriers were calling asking underwriting questions to document their files. This has always been, and will always be, a relationship business.
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Excess Casualty Practice Panel Members
Practice Leader U.S. U.K./Bermuda
Tim DeSett Eric Silverstein Tony Hardy Jonathan Stokes
816.960.9960 404.460.0707 011-44-20-7933-2893 215.794.7202
[email protected] [email protected] [email protected] [email protected]
Minneapolis Kansas City Chicago St. Louis Atlanta Dallas Denver Las Vegas Phoenix San Francisco San Jose Los Angeles Irvine San Diego
San Antonio Houston South Florida Washington, D.C. New York Hartford Charlotte Memphis Philadelphia Omaha Encino Fairfax Boston KANSAS CITY Marjorie Hughes 816.960.9737 [email protected] Nicole Lindstrom 816.960.9563 [email protected] CHICAGO Debbie Goldstine 312.669.6888 [email protected] Amanda Ruback 312.669.6872 [email protected] Jason Riley 312.669.6783
[email protected] NEW YORK
Dirk VanHeyst 646.572.7331 [email protected] Bruce Schneider 646.572.7334 [email protected] WASHINGTON, D.C.
Paul Primavera (Claims) 202.414.2620 [email protected] ST. LOUIS Vince Gaffigan 314.812.3227 [email protected] Amanda Pocius 314.812.3808 [email protected] Nicole Robertson 314.812.3280 [email protected] Eric Silverstein 404.460.0707 [email protected] Greg Cohen 404.460.0728 [email protected] ATLANTA HOUSTON Stacy Seaberg 713.458.5232 [email protected] Clay Brooks 713.458.5481 [email protected] DALLAS Rex Cook 214.720.3424 [email protected] Stephen Brown 214.720.3454 [email protected] DENVER Nicole Holcomb 303.414.6051 [email protected] Shawn Matthews 303.414.6235 [email protected] LOS ANGELES Mark Nieman 213.689.2316 [email protected] Wendy Chen 213.689.2403 [email protected]
