The potential of low-limit non-nat cat E&S

The re/insurance industry has long navigated the complexities and challenges of balancing risk and reward. Traditional models have primarily focused on high-limit, catastrophe-exposed risks, often leaving a significant segment of the market underexplored. 

At AM Specialty Insurance Company (ASIC), we have identified real opportunities in the niche specialty property and casualty space, which offer a natural safeguard against the volatility of high-limit exposures. As we near our third year of operations, our “underwriting-first” focus has proved profitable. Actuarial results have met expectations, validating the strength of a disciplined approach that emphasises well-structured, low-risk programmes. 

In developing a portfolio that can stand the test of time, the true value lies in delivering consistent, predictable results rather than prioritising sheer premium volume.

The hedge opportunity in low-limit, non-natural catastrophe risks

Reinsurers have historically gravitated towards high-limit risks, drawn by the potential for high returns. However, this comes with the inherent volatility and unpredictability of natural catastrophe events. According to Gallagher Re, in 2023 the private insurance market and public insurance entities covered an estimated $123 billion in economic costs from global natural perils. This was the fourth consecutive year that nominal insured losses have topped $100 billion. 

By diversifying into niche segments that focus on low-limit, non-natural catastrophe risks, reinsurers can achieve a more balanced portfolio that mitigates this volatility. These risks tend to be less exposed to severe fluctuations, offering a steady stream of predictable returns.

At ASIC, this approach has been proven by positive results which underscore the viability of investing in this segment. By integrating more low-limit, non-natural catastrophe risks into their portfolios, reinsurers can enjoy a stable foundation upon which to build a resilient and diversified risk management strategy. Underwriting these exposures through pricing, policy language, and strict criteria within guidelines is a key driver for sustainable profitability. 

Underwriting discipline continues to be the focus at ASIC, ensuring that our strategy is not only profitable but also adaptable to the ever-changing risk landscape.

“Reinsurers can significantly benefit from participating in the E&S market.” 

The E&S lines market: a growing opportunity

The US E&S market is a dynamic and rapidly growing sector, currently valued at over $100 billion. This market is characterised by its flexibility, innovation, and ability to address unique and emerging risks that are often not covered by standard insurers. As the direct incurred and defence and cost containment ratio decreased in recent years, the E&S market is expected to continue its profitability trend, benefiting from high demand and favourable pricing conditions. 

According to S&P Global, nearly all lines within the market have reported double-digit growth in direct written premiums. Reinsurers can significantly benefit from participating in the E&S market, tapping into its potential for growth and diversification.

The appeal of the E&S market lies in its ability to provide customised solutions for complex and non-standard risks. This niche positioning allows E&S carriers to tighten their underwriting criteria and shed unprofitable or volatile business lines more efficiently than traditional admitted carriers. This adaptability is particularly valuable in today’s rapidly changing risk landscape, where new threats and opportunities emerge constantly. 

Despite broader economic challenges, the E&S market has shown resilience and continued growth. The market’s adaptability and focus on high-risk coverage areas enable it to maintain profitability even in uncertain economic times. Reinsurers partnering with E&S carriers can access a diverse range of risks, enhancing their portfolios’ breadth and depth.

At ASIC, we pride ourselves on our innovative approach and deep expertise in the E&S market. Our commitment to excellence and our strategic use of advanced technology and data analytics have positioned us as a leader in this space. We offer reinsurers the opportunity to collaborate with a forward-thinking E&S carrier that is dedicated to creating value through tailored insurance solutions. Our strong relationships with brokers, carriers, and other market participants enable us to deliver comprehensive coverage options that meet the unique needs of our clients.

Anne Hoffmans is SVP of programme underwriting at AM Specialty Insurance Company. She can be contacted at: anne.hoffmans@amspecialty.com 

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