Page 13 - 2016 State of the Market from AmWINS

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On balance, the professional lines
market presents ample opportunity for
growth-focused agents and brokers –
offering low pricing, broad forms, and
low retentions in E&O and primary public
D&O in particular. Some segments of the
financial institutions sector will find more
selective underwriting, as will buyers
looking to secure lawyers’ professional
coverage. Asset management firms have
garnered strong interest from carriers.
E&O / D&O
In some respects, the E&O and D&O
marketplace of 2016 looks remarkably
similar to 2015. “Overall, there has not
been a huge amount of change. There is
a lot of capacity and we are not seeing
any market hardening,” says Roddy
Graham, managing director of the
financial lines division of THB Group in
London.
The London marketplace continues to
expand across all areas of professional
liability. “Syndicates are looking for growth management liability lines is inconsistent.
because they can’t get it elsewhere in
their book,” says Graham. “More than
ever, the London market has expressed a
willingness to write U.S. business.”
In financial services, banking and
insurance remain challenging classes
to write, with the exception of the
community bank space which has
remained relatively flat due to a few niche
carriers that dominate that space. In
contrast, the asset management sector
has experienced dramatic downward
pressure on pricing due to increases in
both primary and excess capacity.
“The hedge fund and private equity
fund insurance market is at the softest
point I’ve ever witnessed,” says Andrew
Pritchard, executive vice president and
professional lines broker at AmWINS
Brokerage in Bernardsville, New Jersey.
“We’re seeing average rate decreases
of 10 to 15 percent.” New entrants that
have contributed to the downward pricing
pressure include Allianz, Berkshire
Hathaway, and Endurance.
Conditions in the private equity space are
expected to remain soft. “It would take
significant market events to change the
underwriting behavior of chasing deals
and trying to grow business, because
underwriters view asset management
in particular as an area where they can
make money. It’s historically profitable,
notwithstanding the volatility that can
occur,” Pritchard says.
Lawyers’ professional liability is still
challenging for both buyers and carriers.
“There is only a handful of carriers in the
small law firm space, and the players keep
shuffling. Small firms, with five or fewer
attorneys, are facing high premiums and
carriers are seeing a frequency of losses in
excess of the premiums they are collecting,”
says David Lewison, senior vice president
and national professional lines practice
leader at AmWINS Group, Inc. “I have yet
to find an insurer writing small lawyers that of losses paid by carriers.”
says it is profitable for them.”
The primary market for private company
“Some carriers are offering $15,000
deductibles when everyone else wants
$50,000,” says Lewison. Underwriters
that take advantage of their loss data and
adjust their underwriting in a targeted
fashion are likely to have the best results.
In excess coverage, the pricing over
primary layer rates can be as low as 40
percent and underlying layers are trending
downward as well.
“Today’s follow-form policies are extremely
broad which limits an insurer’s ability to
allocate away uncovered portions of loss.
Losses going up a tower of insurance
are also more likely than ever to exhaust
those policy limits. Add higher payouts
to lower pricing and it’s easy to guess
what will happen when losses catch up,”
Lewison says. How long these rates can
be sustained is a key concern.
In claims involving financial services and
financial institutions, severity rather than
frequency continues to rule the day, with
regulatory action being a key coverage
trigger. “It’s an extremely challenging
regulatory environment,” Pritchard
says. “The SEC continues to dedicate
additional staff to look into market
conduct, whether alleged violations
involve insider trading, valuation, market
manipulation, or the way companies
structure fees for clients. That continues
to be the biggest driver of claims in terms
There is also a higher frequency of informal
investigations by regulators, leading
carriers to broaden their coverage in that
regard. With an increase in the levying of
individual fines and penalties, buyers are
also looking to cover that exposure, but
finding little success in doing so.
“Insuring fines and penalties should be
against public policy,” Graham says. “If
you start insuring fines and penalties
you set the stage for people to behave
improperly, so I doubt that coverage for
regulatory fines and penalties will ever be
added. It’s a moral hazard.”
Source: AmWINS professional lines account data