Lines Sometimes Blurred in E&S Market, Experts Say

In the days of ole, insurance professionals knew at a glance the type of business that best fit into the excess and surplus lines market. Today, the definition of a traditional E&S account has become somewhat blurred, according to one E&S expert.

“The lines between E&S and standard markets have really become blurred over the last decade or so,” said Michael P. Sillat, president and CEO of WKFC Underwriting Managers based in Melville, N.Y. “We see a lot more E&S carriers getting an appetite for stuff that you would typically call standard market.”

But equally – and opposite – Sillat sees many standard market carriers entering areas that have always been reserved for E&S underwriters.

“The lines are blurred, and as a result depending on individual appetite, carriers either are, or are not, entering into one or the other space,” Sillat said.

“There isn’t such a clear definition between those two things anymore,” he says. “Insurance companies have mandates, budgets and goals and in the absence of business being available in that sector, and so much capacity being available in others, they have to change their tune.”

Dave Bresnahan, executive vice president for Berkshire Hathaway Specialty Insurance, says in his view many of the admitted markets that entered the E&S space in recent years are starting to pull back.

“We are actually seeing new business submissions that are currently in the admitted market but that admitted market is either non-renewing or getting out of the business,” he said.

James Drinkwater, president of the brokerage division for Charlotte, N.C.-based AmWins Group Inc., says in his view admitted markets are only pulling away on certain classes.

“I’m not seeing the admitted market pull away from my perspective,” Drinkwater said. “They may be pulling away in certain classes of business but not universally.”

Capacity is so plentiful in today’s market that even catastrophe-prone property business is seeing some pricing decreases across AmWins’ portfolio, Drinkwater said.

Douglas E. Goode, chief operating officer of Rockhill Insurance, a division of State Auto, says his company is seeing some competition from standard lines on traditional E&S property markets, such as coastal homes and secondary homes. “But no one is doing anything stupid,” he says, “but there’s a greater capacity there.”

There are regions that do seem to be moving into the E&S arena that were not typically E&S, Goode added. “A lot of the standard companies are feeling pain, especially the ones that have a lot of exposure to property in the Midwest,” Goode said. “Many are re-underwriting their books.”

In Goode’s opinion, the property market is far from “hard,” but in the Midwest many standard companies have been on the move to reduce exposure. “That’s probably the only line that you’re seeing a lot retreat.”

Overall, the business that’s coming to the E&S space from the admitted market is mostly the business that should have always been non-admitted, says Sillat.

“What we see in terms of business that has started to come out of admitted markets is actually the same business that probably should have never been in the admitted market,” Sillat said.

“We do see business usually shortly after a large event that comes into E&S arena, and more so than ever before we’ve seen it in the last 12-24 months as a result of unusual weather activity,” he said.

Frame property capacity is seeing an uptick in the E&S world. “Not entirely, but there’s a real need in the E&S market for frame capacity,” Sillat noted.

From a casualty perspective, habitational and real estate-driven casualty business are seeing an uptick in E&S business, as well. “We are seeing a lot of standard markets that are exiting habitational general liability completely,” he said.

Lastly, Sillat says, general liability for contractors in New York has become a rare commodity. “There are many more E&S companies writing that business today than there are probably standard markets.”