How Cincinnati Insurance Does E&S

The Cincinnati Insurance Companies have grown business for 75 years through relationships with a carefully selected set of regional independent agents—and business in the surplus lines segment is no exception, executives report.

That sets the insurer apart from other E&S writers, according to Don Doyle, Jr., the architect of Cincinnati Specialty Underwriters, an operating subsidiary of Cincinnati Financial Corporation he helped to start in 2007.

“If you look over the last 15 years, a lot has changed in the E&S market. Today, more than 75% of the E&S market is controlled by three large wholesale brokers,” he told analysts and investors gathered for Cincinnati Financial’s first Investor Day.

“We distribute only through the agents of Cincinnati insurance. No wholesalers, no MGAs, managing general agents, or managing general underwriters,” he said, pointing out one of the characteristics that sets the company apart from competitors in the E&S business.

Doyle, who led CSU for 17 years before turning the reins over to Dawn Chapel in advance of his retirement later this year, believes that the distribution model and CSU’s control of the business has been one of the drivers of consistent profitability.

“Those three large wholesale brokers have a lot of control on where the business is going. They have a bit of control over the risk takers, yet they take no risk,” Doyle said without specifically identifying the big three.

Doyle spoke after President and Chief Executive Officer Steve Spray and several executives in sales and marketing described the processes of vetting quality appointed agencies for personal and commercial lines, which now number just over 2,000, and day-to-day activities that build intimate relationships between agents and their Cincinnati field representatives.

CSU was formed with a foundational philosophy of creating consistent and manageable growth, as well as consistent and manageable profitability, said Doyle, who reported that despite the ups and downs of E&S business, CSU has posted 12 straight years of combined ratio at 94 or better. The 94 combined ratio was actually the result for the latest full year, 2024, when CSU grew premiums by nearly 15%, according to Cincinnati Financial’s most recent financial report. CSU’s average combined ratio over the last 12 years is 81.8, with ratios averaging about 90 for the more recent years, 2020-2023.

Pointing to the distribution model as the first key driver of better-than-breakeven results, Doyle said “CSU does not cede underwriting authority to anyone,” referring to brokers, wholesalers and MGAs. “We are operating only through those independent agents…We want to eat our own cooking,” he said.

Technically, according to information in the group’s annual report, independent agents have access to Cincinnati Specialty Underwriters’ product line through CSU Producer Resources, the wholly owned insurance brokerage subsidiary of Cincinnati Financial Corporation. CSU Producer Resources has binding authority on all classes of business written through Cincinnati Specialty Underwriters and maintains appropriate agent and surplus lines licenses.

During the Investor Day, Doyle said another contributor to CSU’s E&S success is an underwriting appetite focused on accounts with a low risk profile while also maintaining a spread of risk that mirrors the rest of the company. He explained CSU’s typical risk has $1 million in limit or less, with the average policy size coming in at about $10,000 in classes of business removed from mass tort. In other words, CSU won’t write the toughest long-tail classes of the E&S world, like product liability for pharmaceutical manufacturers or medical malpractice, sticking instead to contracting-type risks or property management firms, hotels, motels, bars and taverns, as well as professional liability other than public company D&O. Doyle characterized the appetite as falling in the “low-to-moderate range in the E&S market.”

Exhibits contained in Cincinnati Financial’s 2024 10K annual statement filing reveal that the insurer marketed E&S products in each of the 44 states where it offers standard market commercial lines insurance, with the top five states—Illinois, New York, Ohio, Texas and North Carolina—accounting for roughly one-third of E&S premiums written by CSU.

Doyle also said CSU underwriters average over 20-plus years in the business, rounding out his list of reasons why the surplus lines segment of Cincinnati’s business has remained profitable.

As for the advantages to agents for placing E&S business with CSU, he said eliminating the middlemen—wholesale brokers—by “operating both as the broker and the underwriting company…means we can provide higher commission to our agent.”

Doyle estimated that brokers typically pay 8-10% commissions on E&S business. Working with Cincinnati, agents get 15% base commission on E&S business, and they also have an opportunity to earn profit sharing commissions. “So, in total they could earn 18-20% or more in commission with us vs. 8-10% with a traditional E&S wholesaler.”

“[Agents] can increase their revenue 50-100% by doing business with somebody they see as a true partner,” Doyle said, going on to describe the partnership attributes.

This is an excerpt of a larger story from Carrier Management, Insurance Journal’s sister publication. Click here to read the rest of the story.