As we look back, the 1st quarter pretty much shaped up as we expected, right up until 3/31 and 4/1. Agents didn't have nearly as many holes to fill in their excess casualty towers and many renewals were quoted weeks prior to the effective date, which helped manage expectations with buyers.

We still saw rate increases and while the market would have preferred 30% or so, the average was probably closer to 20%.New capacity picked their spots and helped limit increases when they did. Underwriters were more aggressive at going after business, but not necessarily from a rate or terms standpoint. They were asking for deals and quoting deals, but quoting at the pricing and terms they wanted and not necessarily what it was going to take to win the deal.

We also saw several insureds reduce the limits purchased as an effort to control increasing costs. Then the end of March happened, and the jockeying around of placements found several incumbents at a disadvantage for the first time in 18 or so months. Standard markets started aggressively going after accounts, and in several instances giving year-over-year rate reductions in a market where no incumbents are offering reductions.

New Capacity = Competitive Solutions

Increasingly favorable rates and terms in the excess marketplace saw several new entrants making themselves known the first quarter of 2021. Unlike some expected, these new market entrants have been diligent in their underwriting, and rather than slashing pricing to write accounts, they picked their spots in an effort to secure adequate rate with a focus on limits management and attachment.

Within the deals where we utilized a new market entrant, we were often able to achieve lower rate increases year over year, averaging around a 10% increase vs. the 20%+ that the incumbent was offering. We also saw a few instances in which new capacity replaced a layer for which an incumbent was not offering renewal or reducing their limits, offering additional options to what would have been available in 2020.

The new capacity will continue to be limited in its distribution due to lack of underwriting bandwidth and aggressive with its deployment, focusing on underwriting profit along with top line premium writings. This further emphasizes the importance of partnering with a dynamic and creative wholesale broker who focuses and specializes in the excess space to ensure all available capacity is used to structure the most competitive solution available in the marketplace.

Market Competition

In Q1, for the first time in the last 18 months, many incumbent carriers were at a disadvantage. From conversations with the markets, most carriers are working toward 30% rate increases on their book coming on heels of a year in which the market saw larger rate increases than they've taken in the last 20+ years. Rate reductions from incumbents are highly unlikely and any increase under 10% would be considered a really positive renewal.

Here comes opportunistic underwriting (or lack thereof), as we witnessed several standard markets undercut E&S markets (in one instance by 20% of the expiring). While anyone would agree this is a great win for the individual insured, our concern is the overall impact this has on the long term stability of the market. If enough carriers participate in situations similar to the above it will help drive a dip in the market, which again is a positive and needed for buyers.

However, we remain concerned, as the impact that COVID has had on the courts has some carriers looking at artificially compressed loss ratios. A dip in market pricing just as courts start to open back up could create a second wave of rate increases more painful than the first.

Large Loss Aftershocks

As the year continues to unfold and the world slowly gets back to a new normal, it is important to be cognizant of the fact that while the majority of COVID litigation and rulings have generally favored insurers. Recent data shows 174 motions to dismiss or for summary judgement won by insurers, while policyholders have only won 42 of those motions, according to a litigation tracker from UPenn's Carey Law School. The industry has yet to see the full potential and scope of these lawsuits.

With lockdown and stay at home orders being eased and increased vaccine distribution, the number of lawsuits will continue to climb and it will be paramount to stay up to date on rulings and legal precedents that have yet to be set. The other factor to keep in mind is a trend we last saw in 2008-09, in which claim counts ticked up due to out-of-work individuals finding ways to file claims in an attempt to create an income source.

In addition to the emerging litigation and issues surrounding COVID's impact on the insurance industry, last week's $1B settlement by the University of Southern California, in the sexual abuse case stemming from former campus gynecologist George Tyndall, should send quite a ripple effect through the marketplace given the size and severity of the settlement.

Market Remains Consistently Unpredictable

In conclusion, the excess casualty marketplace continues to be consistently unpredictable. The positive news, at least for the moment, is that the unpredictable factors seem to be favoring insureds. Rate increases aren't going away, but have not been as painful this year and we yet to see a renewal come down to the day of expiration with holes still in the excess placement (not to say we haven't been negotiating renewals until the 11th hour).

It'll be important to pay attention to claim trends and court happenings over the next two quarters, as this will have a big impact on what the excess marketplace looks like in 2022. With all of this said, remember to continually communicate with your insureds, collect as much underwriting data as you can, and get out to market as early as you can.

Engage with your partners on strategy and objectives in order to approach the marketplace with a clear understanding of what success looks like. Every underwriter has a pricing bandwidth they need to fit between; our job is to consistently teeter at the bottom of that bandwidth and doing the above gives us a higher probability of getting there.