< Previous78 BEST’S REVIEW • OCTOBER 2022 Industry Updates Webinar Panel: Surplus Lines Growth Strengthens as Markets Become More Complex Total U.S. surplus lines direct premiums written reached a record $82.6 billion in 2021, according to a new Best’s Market Segment Report. T he excess and surplus lines market is seeing extensive growth as traditional carriers seek alternatives in an industry buffeted by rising uncertainty, according to market participants. There is more opportunity now than ever in the E&S market due to complex risks like pandemic, cyberattack and natural catastrophes, said Lou Levinson, president and chief executive officer, Lexington Insurance Co., during a webinar, “Inside Today’s Surplus Lines Market.” It featured a panel of industry leaders in the surplus lines sector of the U.S. insurance market. Business continues to flow into the segment as the market wrestles with underestimated risk, he said. Surplus lines premiums rose more than 32% in the first half of 2022, fueled by “freedom of rate and freedom of form,” he said. E&S companies are seeing elevated submission volume, a byproduct of hardening conditions in several lines of business that are necessary to E&S lines, said David Blades, associate director, industry research and analytics, AM Best. He noted more accounts in those moderate-to-higher hazard risk classes that admitted market carriers are stepping away from due to underpricing or unfavorable performance concerns are now being placed via wholesale brokers with E&S companies to find the best coverage solutions for the insured. As the world sees the rise of complex risks, many admitted carriers have pulled back, offering less capacity at higher prices, said David Obenauer, CEO, CRC Group. Higher economic stresses caused by COVID-19 and other events make things more stressful for standard-market carriers, causing them to re-evaluate their risk appetites, creating more E&S demand, said Blades. Much of the rising E&S demand has been driven by domestic professional lines underwriters, companies writing more than 50% of their total premium on a nonadmitted or surplus lines basis, said Blades. Lloyd’s underwriters and syndicates have also contributed to the rising demand, although not at the same rate as the domestic professional surplus lines insurers, he said. Lexington is seeing a lot of “micro hard markets” in every segment due to greater unknowns and volatility, such as public entity, real estate, cyber, long-term care, telemedicine and “anything coastal” including flood and wildfire, said Levinson. “There are so many unknowns out there” that are driving growth in the E&S market, said Wendy Houser, chief territory officer, West, Markel. She noted underwriters need to focus on rate adequacy given economic inflation. Total U.S. surplus lines direct premiums written reached a record $82.6 billion in 2021, with momentum continuing through mid-year 2022, according to a new Best’s Market Segment Report on surplus lines. It found U.S. surplus lines companies reported vastly improved underwriting and operating results, and notched their largest year-over-year premium growth since 2003. That record high DPW for E&S included growth of 25% in 2021, said Brady Kelley, executive director, WSIA. Transactions are at record levels in the first half this year, he said. The E&S market has seen overall growth of 25% in the past year and four straight years of double- digit growth, Blades said. The consistency of that growth is key to the overall market performance, he said. Surplus lines insurers have become more comfortable with their retentions at current levels of profitability, he said. AM Best expects to see similar results for 2022 based on indications through the first half of 2022, he said. The past year also marks the first time the E&S market reached 10% of the overall property/ casualty market, said Blades. He said that percentage may continue to rise in coming years. Blades also noted surplus lines premiums for the top 25 players had generally been around 75% of the total market but this past year it had fallen to under 72%, reflecting greater market diversification overall, and the influx of new players in particular. Back in March of this year, AM Best affirmed its stable outlook for the surplus market reflecting, in part, the ability of surplus lines companies to adjust to changing market conditions in the past few years, said Blades. BR —David Pilla79BEST’S REVIEW • OCTOBER 2022 AM Best Business Development RepresentativeMobile PhoneEmail AddressOfficeArea Covered RATING SERVICES Brad Mazur, Managing Director +1 (908) 268-0763brad.mazur@ambest.comUSA (NJ)BMU; CAN; CAR; USA & US Territories (PR & VI) Brendan Tyne, Associate Director +1 (908) 323-1412brendan.tyne@ambest.comUSA (NJ) BMU; CAN; CAR; USA & US Territories (PR & VI) Arthur Snyder IV, Senior Account Manager +1 (908) 894-8040arthur.snyderIV@ambest.comUSA (NJ)BMU; CAN; CAR; USA & US Territories (PR & VI) Daniel Giunta, Account Manager +1 (908) 455-6249daniel.giunta@ambest.comUSA (NJ)BMU; CAN; CAR; USA & US Territories (PR & VI) Nick Charteris-Black, Managing Director +44 20 7397 0284nick.charteris-black@ambest.comLondon EMEA Edem Kuenyehia, Director +44 20 7397 0280edem.kuenyehia@ambest.comLondonSub-Saharan Africa Riccardo Ciccozzi, Director +44 20 7397 0309riccardo.ciccozzi@ambest.comLondonSouthern Europe William Mills, Senior Director +44 20 7397 0323william.mills@ambest.comLondonNorthern Europe Róisín Gallagher, Associate Director +44 20 7397 0261roisin.gallagher@ambest.comLondonEurope Carlos De la Torre, Senior Director +52 55 7903 5420carlos.delatorre@ambest.comMexico City CAR & LATAM Rob Curtis, Managing Director +65 9633 6118robert.curtis@ambest.comSingapore AP; IN & US Territories (AS, GU & MP) Vasilis Katsipis, General Manager +971 4375 2782 vasilis.katsipis@ambest.comDubai MENA; South & Central Asia Learn about AM Best Rating Services: www.ambest.com/aboutratingservices INFORMATION SERVICES Learn about AM Best Information Services: www.ambest.com/aboutinformationservices Advertising Services Bryan Martyn, Director +44 7970 799332bryan.martyn@ambest.com London EMEA, AP & US Territories (AS, GU & MP) Aidan Porter, Senior Account Manager +44 7702 947679aidan.porter@ambest.com London UK Brian McGoldrick, Senior Account Manager +1 (908) 894-9552 brian.mcgoldrick@ambest.com USA (IL) USA (West, Midwest, Southwest, Southeast Regions) Suzanne Ruffa, Account Manager+1 (908) 399 6275suzanne.ruffa@ambest.comUSA (NY)BMU; CAN; CAR; LATAM; USA (Northeast Region) & US Territories (PR & VI) Learn about Advertising Services: www.ambest.com/aboutadvertising Professional Resource Services Doug Doremus, Associate Director +1 (908) 229-9965doug.doremus@ambest.com USA (NJ)AP; BMU; CAN; CAR; EMEA; LATAM; USA & US Territories (AS, GU, MP, PR & VI) Lori Sadukas, Associate +1 (908) 255-8991lori.sadukas@ambest.com USA (NJ)USA (Eastern Region) Learn about Professional Resource Services: www.ambest.com/aboutprofessionalresources Ratings, News & Data Analytic Services Maryrose Paar, Director +1 (908) 894-8039 maryrose.paar@ambest.com USA (PA) BMU; CAN; CAR; LATAM; USA & US Territories (PR & VI) Kellie Bodmer, Senior Account Manager +1 (908) 328-6098 kellie.bodmer@ambest.com USA (NJ) BMU & USA (NY) Jay Eihausen, Senior Account Manager +1 (908) 894-9587 jay.eihausen@ambest.com USA (IL) USA (Mid-Western Region) Debbie Giordano, Account Manager +1 (908) 335-0938 debbie.giordano@ambest.com USA (PA) USA (Mid-Atlantic Region) Danny Heffernan, Senior Account Manager +1 (908) 894-9560 christopher.heffernan@ambest.com USA (GA) CAR; LATAM; USA (South Central Region) & US Territories (PR & VI) Sue Kjaer, Senior Account Manager +1 (908) 894-9557 sue.kjaer@ambest.com USA (MA) USA (New England Region) Mark Kuhlman, Senior Account Manager +1 (908) 894-9561 mark.kuhlman@ambest.com USA (TX) USA (Western Region & TX) Patrick McCahill, Account Manager +1 (908) 268-0765 patrick.mccahill@ambest.com USA (NJ) USA (South Atlantic Region & NY) Maryrose Paar, Director +1 (908) 894-8039 maryrose.paar@ambest.com USA (PA) USA (IL) Jennifer Rudy, Account Manager +1 (732) 266-8644 jennifer.rudy@ambest.com USA (MI) CAN & USA (North Central Region) Brian Schlesinger, Associate Director +1 (908) 894-9586 brian.schlesinger@ambest.com USA (NJ) BMU; CAR; LATAM; USA (Eastern Region) & US Territories (PR & VI) Bryan Martyn, Director +44 7970 799332bryan.martyn@ambest.com London EMEA; AP & US Territories (AS, GU & MP) Aidan Porter, Senior Account Manager +44 7702 947679aidan.porter@ambest.com London UK Darren Hewitt, Account Representative +44 20 7397 0303darren.hewitt@ambest.com London EMEA; AP & US Territories (AS, GU & MP) Learn about Ratings, News & Data Analytic Services: www.ambest.com/ratingsnewsdataanalytics Redistribution Services Bryan Martyn, Director +44 7970 799332bryan.martyn@ambest.com London EMEA; AP & US Territories (AS, GU & MP) James McMyne, Senior Account Manager +1 (908) 255-8764james.mcmyne@ambest.com USA (NJ)BMU; CAN; CAR; LATAM; USA & US Territories (AS, GU, MP, PR & VI) Barry Finan, Account Manager +1 (908) 300-7343barry.finan@ambest.com USA (NJ)BMU; CAN; CAR; LATAM; USA & US Territories (AS, GU, MP, PR & VI) Learn about Redistribution Services: www.ambest.com/aboutredistribution Regulatory Filing Application Services Joli Orr-Weber, Account Manager+1 (908) 442-6148BestESP_Sales@ambest.comUSA (NJ)USA & US Territories (AS, GU, MP, PR & VI) Learn about Regulatory Filing Application Services: www.ambest.com/aboutregulatoryfilingsoftware MASTHEAD Background illustrations on both mastheads are of HMS Victory. To learn more about The Nelson Collection at Lloyd’s, visit www.ambest.com/nelson. BACKSTAY80 BEST’S REVIEW • OCTOBER 2022 The Last Word A fter an increase from 2020 to 2021, money U.S. auto insurers spent on advertising was down across the market for the first six months of 2022, according to the England-based data analytics company Kantar. Auto insurance companies spent a total of $3.1 billion on advertising in 2021, compared to $2.9 billion the year before. But for the first half of 2022, spending was down, to $1.4 billion, compared to $1.7 billion the year before. Liberty Mutual is among the companies that have cut back on buying advertising. The company spent $202.3 million for the first half of 2022, compared to $219.2 million for the same period last year. This doesn’t mean LiMu Emu will be leaving everyone’s TV screens, but it does mean certain markets will see less of him and Doug, the stars of a Liberty Mutual ad campaign that launched in 2019. Liberty Mutual is the sixth-largest insurer, according to Best’s Rankings of the top 25 U.S. private passenger auto writers based on 2021 direct premiums written. Liberty Mutual President and incoming Chief Executive Officer Timothy Sweeney said in the company’s second quarter earnings call that they are still “chasing loss trend with rate” in some lines, notably personal lines and especially personal auto. Liberty Mutual spent $478 million on advertising in 2021, when it recorded $769 million in net income. In the second quarter of 2022, it recorded a $343 million attributable net loss. In addition to reducing rates, Global Retail Markets President Jim MacPhee said in the call that Liberty Mutual is working daily with regulators as a “multitude of headwinds,” including inflation, auto severity and weather losses, impact insurers. Glenn Shapiro, outgoing president of property- liability at Allstate Insurance Co., said in an earnings call that his company is looking at which markets are profitable and incentivizing agents to work those markets. Through the first six months of 2022, Allstate, the fourth-largest U.S. private passenger insurer per Best’s Rankings, has spent $264.5 million on advertising, compared to $309.6 million through the first half of last year. It spent $521.4 million for all of 2021, compared to $325.2 million in 2020. In the second quarter, Allstate reported a $1.04 billion net loss applicable to common shareholders, a year after the company recorded a $1.6 billion net income. Advertising spending by Geico—whose name has become synonymous with ad campaigns featuring cavemen and its trademark gecko—was $319.9 million through the first six months of the year, compared to $539.4 million for the same period last year, according to Kantar. As a result, its expense ratio dropped 2.7 percentage points for the period, parent company Berkshire Hathaway said in its second quarter earnings call. Berkshire Hathaway is ranked No. 2 according to Best’s Rankings of U.S. private passenger insurers. For the quarter, Geico swung to a $487 million pretax underwriting loss from $626 million of earnings in 2021, when Berkshire Hathaway spent $951.7 million on advertising for its auto insurance for the year. That number was up slightly from $949.2 million for the same period in 2020. .BR Where’d the Gecko Go? Auto Insurance Advertising Sees Dip Advertising spending is down in the U.S. auto insurance industry, with three companies expressly saying they are cutting back. by Anthony Bellano Anthony Bellano is an associate editor. He can be reached at anthony.bellano@ambest.com . Berkshire Hathaway Cuts Auto Ad Spend $539,429,298 $319,928,341 Jan. 2021-June 2021Jan. 2022-June 2022 Source: KantarSaint Joseph’s University’s students continue to perform well in industry competitions adding first place in the AM Best student competition to an already impressive list. The students and their fellow insurance majors follow a rigorous CPCU-aligned curriculum that’s infused with analytics and supported by the prestigious Maguire Academy of Insurance and Risk Management. The Maguire Academy is pleased to announce the launch of the Spencer Digital Insights Lab to further enhance the student experience through insurance analytics, innovation, thought leadership and industry partnerships. To learn more, visit sju.edu/insurance or contact the Academy’s Executive in Residence Michael E. Angelina at 610-660-3275. Rising to the Top Maguire Academy of Insurance and Risk Management SJU_June2022_ADPROOF.indd 15/13/2022 9:38:18 AMWorkers’ Compensation • Transportation – Liability & Physical Damage • Construction – Primary & Excess Liability Homeowners – Including California Wildfire & Gulf Region Hurricane • Fine Art & Collections • Structured Insurance Financial Lines • Aviation & Space • Environmental & Pollution Liability • Property • Warranty Fronting & Program Business • Reinsurance ...And More To Come. MORE TO LOVE FROM APPLIED. ® MORE IMAGINATION. ©2022 Applied Underwriters, Inc. The seven insurance companies collectively referred to as North American Casualty Group (AMB #: 018683) each have an AM Best Financial Strength Rating of A. Insurance plans protected U.S. Patent No. 7,908,157. It Pays To Get A Quote From Applied. ® Learn more at auw.com/MoreToLove or call sales (877) 234-4450 AppliedUnderwriters_June2022_2ndADPROOF.indd 15/13/2022 9:27:25 AMNext >