WHOLESALE E&S MARKET REPORT 2017 · ABRAM INTERSTATE INSURANCE SERVICES, INC. CMGA We help you High Value Homes help your customer. Flexible Underwriting | Coastal | Prior Losses

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ALTHOUGH THE future of the US economy is still in question less than a year into a new presidential administration, a changing regulatory landscape on the state and federal levels is expected to gain momentum in the latter months of 2017.

Despite economic shifts and uncertain-ties, the surplus lines market has experi-enced impressive growth in premiums so far this year, indicating a healthy market for the sector charged with insuring the world’s hardest-to-place risks. While the overall market remains soft, select markets around the country are firming up as the entire wholesale industry becomes more competi-tive than ever and new and unique products continue to rattle the state of the market.

According to the US 2017 Mid-Year Surplus Lines Growth Report conducted by the Surplus Lines Stamping Office of Texas [SLTX], the 15 service offices nationwide reported total premium of $14.3 billion, a

As premium surges nationwide for surplus lines in the US, IBA takes a look at what’s driving the market and what lies ahead for the wholesale E&S industry

E&S MARKETWHOLESALE

REPORT 2017

6.6% improvement over 2016. E&S policy items and filings rose almost 11% from last year. Arizona, Utah, North Carolina and Minnesota experienced the greatest premium growth, attributing their successful increases to market changes in property and construction, new and improved business technology platforms, and policy premium increases. The nation’s four primary markets in California, Florida, Texas and New York, which collectively made up $10.9 billion of the total mid-year value, also saw increased premium volume ranging from 5% to 8%.

“Across the United States, we are seeing premium increases, with some states even having double-digit increases,” says Norma Carabajal Essary, CEO and execu-tive director of SLTX. “That kind of growth shows me a couple of things: One, it shows an improvement in the economy in terms of purchasing power. But even more so, it demonstrates more of an understanding by

the consumers who actually buy this type of coverage.”

While there is no contention that surplus lines is growing steadily throughout the country, Pennsylvania was the only state to note a decrease in premium (0.9%) compared to 2016. However, the Keystone State still has time to reach or surpass its previous year’s volume; in fact, this time last year, four state offices reported premium decreases. The positive change across the board this year is yet another indication of a strong and growing surplus lines market.

Challenges and opportunitiesDespite the favorable direction the industry is moving in, challenges still exist in this vast market – namely, the challenge of accurately depicting the purpose and function of E&S coverage to consumers.

“Just by its name – surplus lines – it can be really hard for people to understand that

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2017 MID-YEAR WHOLESALE PREMIUMS BY STATE

ARIZONA$269 million37,456 items

IDAHO$51 million9,192 items

FLORIDA $2.99 billion

552,510 items

UTAH$131 million12,064 items

MISSISSIPPI$210 million72,114 items

NORTH CAROLINA$357 million61,188 items

TEXAS$2.77 billion 516,114 items

OREGON$172 million27,353 items

PENNSYLVANIA $614 million 98,578 items

ILLINOIS $737 million70,854 items

MINNESOTA $257 million22,477 items

NEW YORK $ 1.99 billion

163,689 items

WASHINGTON$398 million58, 212 items

NEVADA$133 million16,724 items

CALIFORNIA $3.2 billion

348,498 items

Mid-year premium by region

West: $4.4 billion

South: $6.3 billion

Northeast: $2.6 billion

Midwest: $994 million

Source: US 2017 Mid-Year Surplus Lines Growth Report

it is insurance,” Essary says. “Our industry is trying to make itself better understood by consumers, and part of that is being more transparent in terms of what surplus lines means, what it does and what it is for. We try to explain it as specialty lines insurance, and people seem to understand that a little

bit better. You really have to explain what surplus lines insurance is, and that is one of the challenges.”

Other challenges Essary singles out include the delay in technology pursuits and strategies, and increased merger and acqui-sition activity. According to Deloitte’s 2017

Insurance M&A Outlook, more than 520 deals were closed in the industry in 2016, totaling $27.3 billion in value. In the final months of 2017, M&A deals are expected to mirror the lively activity that typified the second half of 2016.

“During any M&A, one of the things you


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have to be really mindful of is the technology platforms that are present and how to merge technologies and ultimately make advances in the area,” Essary says. “There is an opportu-nity for the industry to begin using better data and technology that provides a better user and customer experience. I think that if we can bring that value to the buyer, then there’s less to have to really sell at the end of the day.”

Another prominent challenge is the growing trend of consolidation by retail brokers. According to Timothy Turner, chairman and CEO of RT Specialty, “[Retailers] are consolidating their use of wholesalers, MGAs, MGUs and binding authorities; that is a very strong and consis-

tent trend in the marketplace today. Today, data and analytics are available to most retailers, and as a result of that, they can see the cost of being ine� cient and using

too many wholesalers, so they are moving quickly and consistently to consolidate their use of intermediaries in the specialty space.”

So how does the industry keep up with the

Source: US Surplus Lines Service O� ces Mid-Year Assessment

Mid-year premiums 2016Mid-year premiums 2017

$0 $50 million

$100 million

$150 million

$200 million

$250 million

$300 million

$350 million

$400 million

$450 million

$500 million

$1billion

$2billion

$3billion

$4billion

AZ

CA

FL

ID

IL

MN

MS

NC

NV

NY

OR

PA

TX

UT

WA

MID-YEAR PREMIUMS: 2016 VERSUS 2017

$269 million$208 million

$3.2 billion$3.05 billion














“Our industry is trying to make itself better understood by consumers, and part of that is being more transparent in terms of what surplus lines means, what it does and what it is for”Norma Carabajal Essary, Surplus Lines Stamping O� ce of Texas

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DEDICATION PRODUCES RESULTSWebb Simpson 2012 U.S. Open ChampionTeam Burns & Wilcox

In golf, as in specialty insurance, every decision involves risk. Dedication and expertise are essential in maneuvering difficult terrains with confidence. Burns & Wilcox’s world-class team has the power and drive to handle your client’s most complex risks with ease.

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trend? Turner advises wholesalers to partic-ipate in the consolidation, which has had a positive impact on national wholesalers in particular, as they are able to win new busi-ness as retailers move business from smaller intermediaries to larger national platforms. To survive this trend, smaller intermediaries must look into becoming more specialized and developing proprietary products to stay relevant in this marketplace, Turner says.

What is clear, however, is that as new risks emerge and new product opportuni-

ties continue to arise in existing markets, the surplus lines industry will continue to be challenged, but will remain a necessity to the insurance industry overall.

REGIONAL PERSPECTIVES

WestOut of the 15 surplus lines service

o� ces around the nation, seven are located in the Western states. Because the majority of reported wholesale volume is concentrated in this area, the region provides a window into the current state of the market. The West is also home to the two states with the greatest premium increases this year: Arizona and Utah reported the largest mid-year gains at 28.82% and 26.83%, respectively.

Kim L. Randall, executive vice presi-dent and property director at Worldwide Facilities, mentions that the West is also experiencing plenty of competition, specif-ically in the property space. “In addition to the standard markets expanding their

appetite for risk, they are also increasing limits and continuing to drop rates,” she says. “Capacity is at an all-time high for [earthquakes], although the rate drops have slowed to under 10% in most cases.”

In contrast to the neighboring Midwest, the West possesses little worry in the realm of weather exposure, with one notable excep-tion. “We don’t see some of the wind and hail exposures that are relevant in the rest of the country,” Randall says. “This makes the ‘all risk’ that much more appealing to the stan-

dard markets. We do have fl ood exposure, but again, not as relevant as in many other parts of the US. Our saving catastrophic exposure here is earthquake, and that keeps the wheels spinning.”

Earthquake risks have been a major driver of market competitiveness, Randall adds, and as a result, “premiums continue to go down, but [more] clients [are coming] into the market, as they are getting good limits for premiums acceptable to them.”

When it comes to regional trends, Randall says she’s seeing a slight hardening in the large-frame builder’s risk arena, in line with the same trend nationwide.

“Carriers are reducing their limits or exiting these projects,” she says. “In some cases, cheaper coverage can be obtained, but this is where the form knowledge comes in – one has to be careful not to be losing signifi -cant coverage in exchange for a few pennies. There are a lot of these types of projects being built in the West, so we do see an impact on placements.”

Midwest The Midwest experienced impres-

sive premium growth last year – Minnesota in particular garnered large gains thanks to increases in property and construction liability, according to Essary. Both Illinois and Minnesota collectively experienced a 19% growth in premiums and a 13.3% rise in items in mid-year 2017 compared to 2016.

“Generally speaking, the market remains fairly soft, and the conditions are fairly soft,” Turner says. “However, there are some pockets of business that are fi rming. One of them is clearly commercial auto – the commercial auto market is fi rming rapidly, as it continues to be a loss leader in the reinsurance world. That has a� ected almost every commercial standard market and the E&S marketplace.”

Other classes of business showing signs of hardening include habitational, long-term healthcare and New York construction, the latter of which, Turner explains, “is a very, very fi rm marketplace with a very limited group of markets that will entertain those risks.” Although the market is hundreds of miles away, New York construction has an impact on the Midwest because a high percentage of construction business also resides in that region. In addition, national habitational and transportation portfolios a� ect the Midwest, especially considering the concentration of trucking business in the region.

Overall, while the market remains quite soft in most other segments of the business, “the percentage of non-admitted business in the commercial property & casualty space remains quite strong at 10% of the market-place,” Turner says. “So while it is soft, the flow of business into the channel remains steady.”

South In line with the rest of the nation,

the South’s surplus lines premium is continuing its upward trajectory this year.

“Retailers are consolidating their use of wholesalers, MGAs, MGUs and binding authorities; that is a very strong and consistent trend in the marketplace today”Timothy Turner, RT Specialty

R-T Specialty, LLC (RT), a subsidiary of Ryan Specialty Group, LLC, provides wholesale brokerage and other services to agents and brokers. RT is a Delaware limited liability company based in Illinois. As a wholesale broker, RT does not solicit insurance from the public. Some products may only be available in certain states, and some products may only be available from surplus lines insurers. In California: R-T Specialty Insurance Services, LLC License #0G97516. © 2017 Ryan Specialty Group, LLC

r tspecialty.com

OUT-THINK.OUT-WORK.OUT-EXECUTE.REPEAT.

If your client has a complex risk situation, you don’t have to go it alone. Our specialty risk professionals have deep experience with the toughest risk placements. We not only design creative solutions for all size accounts but repeatedly out-execute the competition. Contact your RT specialist at www.rtspecialty.com.

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R-T Specialty, LLC (RT), a subsidiary of Ryan Specialty Group, LLC, provides wholesale brokerage and other services to agents and brokers. RT is a Delaware limited liability company based in Illinois. As a wholesale broker, RT does not solicit insurance from the public. Some products may only be available in certain states, and some products may only be available from surplus lines insurers. In California: R-T Specialty Insurance Services, LLC License #0G97516. © 2017 Ryan Specialty Group, LLC

R-T Specialty, LLC (RT), a subsidiary of Ryan Specialty Group, LLC, provides wholesale brokerage and other services to agents and brokers. RT is a Delaware limited liability

r tspecialty.com

OUT-THINK.OUT-WORK.OUT-EXECUTE.REPEAT.

If your client has a complex risk situation, you don’t have to go it alone. Our specialty risk professionals have deep experience with the toughest risk placements. We not only design creative solutions for all size accounts but repeatedly out-execute the competition. Contact your RT specialist at www.rtspecialty.com.


https://rtspecialty.com/

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SERVING INDEPENDENT AGENTSSINCE 1930

(800) 299–9421 WWW.QUIRKCO.COM

Quirk Co ad.indd 2 24/03/2017 12:00:36 AM

“I’ve been in this business for a few years now, and it’s probably never been more competitive than it is right now in the property marketplace”Jim Epting, Burns & Wilcox

Gary D. Pullen, executive director of the Florida Surplus Lines Service Office, shared in the US 2017 Mid-Year Surplus Lines Growth Report that “the primary factors of [Florida’s] 6% growth for the first six months of 2017 are an improving economy, particularly in housing, and the fact that more policies written are being renewed rather than re-entering the admitted market at the end of the period.”

Altogether, the property insurance market in the South continues to be a competitive space, as it encompasses every-thing from commercial property to coastal and personal homeowner dwellings.

“As with most places, [the South] is ultra-competitive,” says Jim Epting, senior vice president and managing director at Burns & Wilcox’s Atlanta office. “I think

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Hull & Company

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TOP 20 WHOLESALERS, 2017

just under 1%, the New York office experi-enced a 6.49% increase in premium and a 10.56% increase in items over the same period.

“We have been in a soft market for quite some time, and while there may be spurts of growth here and there, the Northeast excess & surplus market continues to soften,” says Elmer Rivera, area president with Risk Placement Services. Namely, Rivera points to transportation and constriction as limited markets where historically high claim activity and state laws have created a legal environment that prevents new markets from coming into the space – however, he adds that there are plenty of opportunities “if you know where to look.”

when you are talking about the Southeastern part of the country and you are talking about wholesale excess & surplus, you tend to think about wind-exposed property. I’ve been in this business for a few years now, and it’s probably never been more compet-itive than it is right now in the property marketplace. With all the capital in the industry and the robust data and analytics, it has driven property rates to what I think are historical lows.”

Consistent with national industry trends, Epting says the trends he sees in South from month to month are almost a bellwether for what is happening in the surrounding economy. Yet, the big question on his mind is small business and distribution, and how

to continue to be able to handle that busi-ness, considering that the cost continues to rise. The increased commoditization of certain lines of business will also present a major challenge.

“I think that’s a big challenge for everyone – just trying to get their arms around what needs to be automated and what needs to be touched by human beings, and ultimately what the best way to handle business is,” Epting says.

NortheastRounding out the US regions is

the Northeast, where the New York and Pennsylvania stamping offices provide insight into the market. While Pennsylvania was the only state in the mid-year assess-ment to report a year-over-year decrease of

Working closely with state stamping offices in California, Florida, Illinois, Minnesota and Texas, IBA compiled this list of 20 companies that dominate the nation’s wholesale market from coast to coast.


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SERVING INDEPENDENT AGENTSSINCE 1930

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In a region that is home to the nation’s oldest infrastructure, replacing the old with the new produces a domino effect in the economy, Rivera says. “Developers reimagine whole neighborhoods, giving birth to a renaissance in areas where 10 years ago, the average person would run away. This rebirth requires building supplies, creates construction jobs, invites high-end and fashionable business startups, and attracts people who look to live in these neighborhoods [and] are willing to pay the high rents that doing so requires.”

Right now, more and more standard markets are chasing excess & surplus busi-ness, Rivera says, which has resulted in property rates dropping and new compet-itors coming into play. To keep up, whole-salers are attempting to stay relevant with clients by offering the best products, better commission levels and an improved ease of doing business.

With a reported $3.7 billion in excess lines premiums for 2016 in the New York region, Rivera reminds brokers that there is “an abundance of opportunities for the wholesale E&S market. The fastest-growing consumer group – people from diverse cultures – present a virtually untapped opportunity for the insurance industry … wholesalers who are able to tap into these revenue streams will benefit from the fruit of their labors.”

TOP COVERAGES BY PREMIUM VOLUME FOR 2017

Source: Florida, New York, Texas and California surplus lines stamping offices

FLORIDA

0 $300million

$600million

$900million

$1.3billion

Collateral protection

Commercial package

Homeowner’s

Commercial general liability

Commercial property $1.25 billion

$535 million

$195 million

$128 million

$103 million

TEXAS

0 $300million

$600million

$900million

$1.3billion

Property – package

Professional liability/E&O

Excess/umbrella

General/commercial premises liability

Fire/allied lines $1 billion

$522 million

$458 million

$191 million

$144 million

NEW YORK

0 $300million

$600million

$900million

$1.3billion

Commercial multi-peril

E&O, D&O

Excess liability/umbrella/medical malpractice

Primary property

Primary general liability $720 million

$398 million

$281 million

$169 million

$92 million

CALIFORNIA

0 $100,000 $300,000 $400,000

Professional liability/E&O

Automobiles

Excess liability

Aviation

Workers’ compensation $331,362

$66,867

$34,955

$20,598

$20,095

$200,000

Average premium amount per policy in rolling 12 months


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WHOLESALE E&S MARKET REPORT 2017 · ABRAM INTERSTATE INSURANCE SERVICES, INC. CMGA We help you High Value Homes help your customer. Flexible Underwriting | Coastal | Prior Losses