Rookie rush into E&S insurance could catch incumbents on back foot

A rush of rookie entrants to excess and surplus (E&S) lines right as economic inflation peaks and social inflation returns from Covid could catch incumbent players on the back foot, underwriters at specialist re/insurer  Ascot Group have suggested.

“It is an exciting time in the E&S space,” said Matt Roy (pictured), Ascot's head of E&S casualty.

Roy cited “a recent wave of entrants” to the market from domestic surplus lines insurers, established admitted carriers forming standalone surplus lines business units, and newly-formed MGAs.

“New entrants are beginning to have a noticeable impact on marketplace dynamics,” he said on signal that new capacity has decelerated some rates and outright cut others, particularly for “lower to moderate hazard risks” in the E&S casualty market.

But the upswing in economic inflation and the assumed return of social inflation as courts reopen post-pandemic could create a pinch on margins if price story goes too far the other way.

That puts new entrants at a notable advantage to incumbent players with existing longer-tail legacy books who must watch the impact of inflation on reserves.

“Long-time insurers face more of headwinds than newer entrants who lack a legacy claim portfolio,” Roy said.

“This can lead to a volatile environment that impacts pricing and limit deployment,” he warned.

On the plus side, the heavy growth in the E&S lines should force innovation and operational efficiencies, he noted.

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