Stark pointed to a recent deal where CNA's Select Risk surplus division wrote the risk for a tunnel-boring machine at a mining-equipment company, while its retail arm wrote the other risks.

Roxanne Mitchell, president of the surplus-lines unit at XL Insurance, agrees that “severity-driven” products, in which admitted carriers were dabbling during the soft market, are returning to their traditional home in E&S.

Stark adds that retail-channel markets are also shying away from risks associated with foreign-made goods, giving the wholesale space plenty of opportunity on this front.

Another manufacturing class in which E&S is finding additional business: sports protective products, driven in part by all the recent media coverage (and legal activity) around the subject of football helmets and concussions.

And in Hospitality risks, “retail markets are getting conservative with regard to their appetite for Assault & Battery, so they are pulling out of anything with a large liquor exposure. So we're being very opportunistic there,” Stark adds.

Mitchell notes that “Miscellaneous E&O continues to grow in certain tougher segments, such as security guards.

“And we're seeing some growth in certain tougher Construction segments, such as Street and Road and Sewer,” says Mitchell, who adds that XL is seeing “a huge increase in interest” in its Buffer Auto product with commercial-fleet and other transportation customers—a product that XL developed after last year's NAPSLO conference, where it became clear a huge demand existed for this coverage.

 — Bryant Rousseau

NRRA IMPORTANCE STRESSED AS DODD-FRANK REPEAL THREATENED

NAPSLO Executive Director Brady Kelley says members have been to Washington to “stress to [Congress] the importance” of the Nonadmitted and Reinsurance Reform Act (NRRA) portion of the Dodd-Frank Act, which has been under fire by Republicans, including presidential candidate Mitt Romney, who has vowed to repeal Dodd-Frank if he is elected.

Kelley told members attending the general session that the trade association “has to protect” provisions in the law dealing with nonadmitted insurers. He called the NRRA a “good, strong law,” which will take time to implement to its fullest extent.

There may be hope of saving some parts of Dodd-Frank if Romney wins the election and follows through on his repeal threats. During the first presidential debate, Romney said there are some regulations in the financial-overhaul act that are warranted.

Former Florida Gov. Jeb Bush, the convention's featured speaker, used Dodd-Frank as an example of the kind of overregulation he says is “stifling investment.” He blasted the 2,450-page document's vagueness, with countless clauses containing the word “may.”

Remembering his audience, Bush, who calls himself an increasingly “libertarian conservative,” says the NRRA portion of Dodd-Frank is not a subject of his criticism. 

The former governor also praised the surplus-insurance industry for its response during his tenure, which included the 2004 and 2005 hurricane seasons. The state's recovery was aided, he says, by the lack of regulatory oversight of surplus lines.

“We recovered far faster because of your industry,” he told the packed meeting room.

— Chad Hemenway

A GROWING CONCERN: CARRIER SOLVENCY

Retail brokers are increasingly concerned about the solvency and independence of their potential insurance partners, says Alan J. Kaufman, president and CEO of wholesaler Burns & Wilcox.

“We've never had to send out so many financial statements,” he says, adding that it is a request he's happy to fulfill. “[Brokers] are re-evaluating who they want to do business with. Maintaining relationships is important, and they don't want any E&O claims for themselves.”

Kaufman says he'd rather see his competition healthy than otherwise. The industry then looks better overall.

But the fact is, with so many producers still competing for pieces of the same pie, he predicts more consolidation among brokers large and small.

Kaufman says B&W has increased market share by hiring more “ambitious, eager and innovative” young talent while spending on an intense marketing campaign. Submissions are up, and the wholesaler is binding more, he adds.  —CH

XL: WORKING ON THE RAILROAD

In just over a year, XL's surplus-lines unit has expanded its focus from just one line of business to five. One of these new focus areas: railroads.

“We came out of the gate with all the coverages any railroad customer could need,” says Roxanne Mitchell, president of the surplus-lines unit at XL Insurance. Mitchell notes that she and her team have more than 100 years of combined experience with the rail market.

“The railroad business has been great, performing extremely well this year from both a top- and bottom-line perspective,” she says, adding that some of the traditional rail markets—and there aren't many that play in this niche space—have been retreating on coverages or significantly raising their rates, which has helped XL quickly establish itself in this space.

“It's a very volatile business, and railroad exposures are really different from anything else,” says Mitchell, citing derailments as just one example. “But we really know this business and have great relationships, and it's a line we're committed to and excited about.”  —BR

MARKEL OVERHAULS IT PRO POLICY

During the NAPSLO convention Markel announced the launch of its overhauled IT Professional policy, which now includes configurable first- and third-party Data Privacy and Security coverage, General Liability and Media Injury options in addition to basic Professional Liability.

The policy includes coverage for regulatory fines and penalties, including Payment Card Industry and HIPAA fines.

Coverage under the Media section extends to content published in a variety of forums, including social media.

“It also includes our unique coverage for theft of money and securities, as well as interruption costs to restore the insured's data and extra expenses while recovering from a breach,” says Jake Kouns, director of Cyber Security and Technology Risks underwriting for Markel.  —CH

THE CNA EDGE IN CLAIMS, RISK CONTROL

When asked what sets CNA Select Risks apart from its competitive set, both Carol Stark, vice president of Select Risk, Casualty & Programs, at CNA Insurance, and John Angerami, the head of Select Risk, both zeroed in on their claims and loss-control capabilities.

“We have a claims group dedicated to E&S—and that's very unique,” says Stark. “Especially on the E&S Casualty side, you need claims specialists with the 'intestinal fortitude' to fight those claims that need fighting.”

And in risk control, CNA Select Risk has a dedicated team of Product Liability specialists who are all Underwriter Lab-certified—and certified in Six-Sigma and Lean Manufacturing.

“This gives them a unique perspective on tough product and manufacturing risks,” says Stark. “We can achieve good results from a Product Liability and Premises standpoint just by having them improve manufacturing processes. And insureds have really seen the value of that.”  —BR

OPTIMISM: MORE LINES IN THE WATER

Hank Watkins, president of Lloyd's America, says those he spoke with at NAPSLO have expressed optimism for the U.S., driven by more activity—that is, more submissions. While many of these submissions are merely lines dropped in the water—producers seeing what's out there for their clients—that's still an improvement over eight months ago, when producers were just “passing the lake.”

“It feels better around here than it did a year ago,” Watkins observes of the general NAPSLO atmosphere.

On the industry response to emerging risk, such as Contingent Business Interruption and Cyber Liability, Watkins says it takes time to understand exposure. He uses Employment Practices Liability as an example: It used to be a big unknown, with products rolled out little by little. But now it is “freely underwritten.”

“Will Cyber ever get to that point? I don't know. It's such a high, global risk,” he says.  —CH

SMALL-BIZ EXCESS CASUALTY: TRICKY, BUT CAN BE 'GOLD'

There are a couple competitors “in the trenches” writing small-market Excess Casualty, but many carriers avoid it. The effort just doesn't pay—even though loss ratios are good—because the premiums aren't high: Expense ratios can cancel out the money coming in. But Linc Trimble, head of Excess Casualty at Torus, says there is money to be made—if you're efficient.

In fact, Trimble says “small business can be gold” if you can cut the time spent on underwriting and servicing. “It's an underserved marketplace, and we can make a difference,” he says.  —CH

SAY GOODBYE TO AS-IS RENEWALS

Yes, there is some positive rate movement—but with that comes “more trading and bargaining” at renewals, says David Bresnahan, president of Lexington Insurance Co. The “as-is” renewal is rarer. In the end, some insureds are prepared to take on more risk via self-insurance or co-insurance.  —CH

RISK ON THE ROOF

It seems appropriate that there was some specialty risk on the roof of the Marriott Marquis, host of the convention, for most of Oct. 8. It was hard to miss the production trucks in front of the hotel, but passersby may not have seen the actors on the roof through the dome near where CRC, LIU, Markel and National Indemnity Group were stationed. Rumor was the movie being shot was “Catching Fire,” the second film in the “Hunger Games” trilogy, due to be released in November 2013. And on Oct. 9, window-washers were dangling from ropes at the very top of the 52-story hotel. So who's writing them?  —CH

THE LONG & TALL OF IT

If a study is ever done of the industry with the tallest average height of the professionals working in it, I'd wager that surplus lines comes in near the top (maybe just behind the NBA). There were lots and lots (and lots) of attendees soaring past the 6'4” mark. Never has this 5'11” (and a half) reporter felt so short at a conference!  —BR

Matthew Nichols
NAPSLO President
President, All Risks Ltd.

“Rates are being driven up in Construction risks, personal lines and Workers' Compensation, among others, and the standard markets are trying to clean up their books of business. We expect to see surplus' top-line premiums start moving back to growth again. The driving factor is that the standard side has been underpricing nontraditional risks, and it has been a struggle [for them] to find acceptable levels of profitability for those lines of business.

“Whether the economy helps us or not, the volume of business will be more significant than it has been in 2012.”

James Drinkwater
Member, NAPSLO Board of Directors
CEO, AmWINS Brokerage

“The specialty marketplace remains fluid. We have seen a significant increase in submissions and bound accounts in a variety of areas as the standard markets seem to have a lack of appetite for certain classes and specific industries while our markets understand the inherent risks and can underwrite them accordingly.

“Our largest growth area has been Catastrophe Exposed Property, and this will continue to be both a challenge and an opportunity. In addition, a few markets such as New York Contractors, Transportation and Health Care have moved away from the standard admitted marketplace.”

Joel Cavaness
Member, NAPSLO Board of Directors
President of Risk Placement Services Inc.

“The economy continues to be sluggish, which affects surplus lines. A certain amount of our success depends on providing coverage for startup businesses with no experience in insurance. We face a dilemma if there is a decline in startups due to the economy.

“Finding, recruiting, retaining and educating the right people in the industry is always a challenge. We need to keep the energy, momentum and growth of business going.”

Steven Gross
Member, NAPSLO Board of Directors
Chairman & CEO, Metro Insurance Services Inc.

“From the vantage point of a program manager, the greatest challenge right now and for the foreseeable future is to manage our clients' expectations on rate increases. It is evident that the industry has come to a crossroads where underwriting profitability is a high priority as a result of low investment income and poor experience over the last seven years of declining rates.

“Continuing to reduce redundancy in reserves has to become more limited as the last few years of higher loss ratios come home to roost. What is especially challenging is the forecasting of appropriate rate increases on accounts that have proven to be profitable (as a result of mild weather events) despite the depressed rates, knowing it is only a matter of time before those accounts are not profitable.”

Gilbert C. Hine
Member, NAPSLO Board of Directors
President of McClelland & Hine Inc.

“For carriers, the challenge is achieving adequate ROI writing business in a market with continued significant capacity, falling investment yields and declining underwriting margins. For brokers, the challenge is in effectively dealing with spotty market conditions as carriers begin to implement corrective actions on their more marginal lines. Both must continue to make major resource commitments to implement effective, timely technology to add value to their relationships and achieve increases in productivity in an age of instant information and 24/7 communication.”

Letha E. Heaton
NAPSLO President, 2010-2011
Vice President, Admiral Insurance Co.

“Addressing the troublesome and pretty chaotic Catastrophe and Wind environment, we know that weather patterns have demonstrated that historic models aren't reliable. What will be a reliable model is still largely an unknown.

“As for Cyber & Data Breach coverage: Everyone wants to write it, but nobody wants that first ground-breaking class action suit. What the climate will be for plaintiffs in this class will in no small part be determined both in courtrooms and by statutes. My guess is we haven't even anticipated all the ways this exposure can go wrong.”