Investors in the insurance sector are being more selective about capital deployment, as different market cycles are playing out simultaneously, industry executives said during an Inside P&C conference panel.
“This cycle, interestingly, I think investors are a lot more skeptical, a lot more careful,” said Tony Ursano, Insurance Advisory Partners co-founder and managing partner.
“People are waiting to see just how disciplined the industry remains and to the extent the industry doesn't take full advantage of what's happened in the areas where the market is reasonably hard.”
Industry executives are seeing a divergence in the cycles that some lines of business have been experiencing over the last months.
Property cat and E&S property overall, for example, are going through a hard phase, with rising pricing and tighter limits while, simultaneously, D&O and cyber are softening.
Arch NA insurance president Brian First noted, “We have 15 specialty business units at Arch in the US, and they are not all in the same market cycle.”
Echoing First’s remark, Bryan Salvatore, specialty EVP at The Hanover, said, “The E&S business, both property and casualty, and some of the lines of business, like healthcare and transportation, feel like they still have strength in terms of pricing.”
E&S
The non-admitted channel has not only benefitted from strong conditions in the property market but also from the increased flow of business from the admitted market into E&S.
While the non-admitted segment is seeing a 'Golden Age,’ some wondered how long the current cycle can last as the admitted channel looks to draw business back.
“I think this ought to be a secular change. Why wouldn't you want to do as much business as you possibly could on an E&S basis where you can change rates and terms and conditions at a moment's notice?” said IAP’s Ursano.
“I think this is going to last for a while and if it doesn't, it's a shame, because the moment it starts to flow back into the admitted market, I think that's bad news for returns and bad news for investors,” he added.
Executives expect the current growth of the E&S sector to continue, as the flexibility that the non-admitted channel provides is enabling underwriters to look for more creative solutions amid rising lost costs trends.
“Why would you not continue if you see risks being shed in the admitted marketplace? Why wouldn't you want to have a home for them with capital that can get adequate returns or great margins in certain environments?” First noted. “The customers are accepting the solution.”
In line with the executive’s comments, Hyperexponential co-founder and CEO Amrit Santhirasenan said that regulators will have to consider what needs to happen structurally in the admitted channel as business moves away from the sector.
“There's got to be thoughts about what's happening,” the executive said. “[There is] the desire to be more agile, to be more responsive.”
Vesttoo
The Israel-based ILS platform has been immersed in a scandal over alleged fraudulent letters of credit supporting some of the deals in which it was involved.
While the company has filed for bankruptcy, executives noted that ‘a huge’ dislocation in the industry is not expected from the Vesttoo fallout.
Executives expect that the controversy will lead regulators, ratings agencies, and market players overall to be more thoughtful about the capital they deploy.
“[This is] a reminder that quality matters,” First added.
