2021 M&A outlook: Questions, trends and coverage issues
Expect an emergence of new private/public partnerships as a result of the coverage shortfalls revealed by the COVID-19 pandemic.
What follows is a look at some of the major questions, trends and coverage issues facing the excess & surplus insurance market as well as the risk management sector as our industry collectively looks toward 2021.
How has the hardening of the market impacted the excess & surplus market as well as insurance industry overall?
The excess & surplus (E&S) sector and the insurance industry as a whole began transitioning to a hardening market in mid-2019. With the impact of COVID-19, it intensified with certain areas experiencing capacity restrictions, which we are currently facing.
Carriers have in some instances scaled back capacity and amended policy terms and conditions to reflect offerings more closely aligned with their objectives. This led our company, Burns & Wilcox, to experience a dramatic increase in underwriting submissions week-over-week.
Some of the most notable lines of business impacted include:
- Coastal property;
- Coastal homeowners;
- Management liability (such as directors & officers and employment practices liability insurance);
- Excess casualty; and
- Transportation.
We also are seeing an influx of business coming out of the admitted market into the E&S market, which is typical of a hardening market.
Market conditions, client needs
Prior to COVID-19, Kaufman/Burns & Wilcox identified the opportunity to expand our transportation expertise based on market conditions and client needs. In late 2019, Burns & Wilcox launched its Transportation Practice Group, bringing together our expertise from around the country with common direction, market access and thought leadership. This practice group was pivotal in continuing to be a valuable resource to our retail partners during COVID-19, with such high demand placed on the delivery and trucking industries.
How has the E&S market in particular been impacted by COVID-19?
Most E&S carriers took on COVID-19 related charges in the first two quarters of this year.
At this point, we are past the major insurance business impacts such as policy cancellations, insureds going out of business and a decrease in new business. We are now experiencing new business opportunities, picking back up to normal levels.
As many understand, the biggest impact has been on small business while larger brokerage accounts have continued to grow during COVID-19.
Burns & Wilcox Brokerage continues to generate double-digit growth in premium and new business, despite the changing market and economy conditions. For example, we have recently played a role in supporting new business such as “pop up” hospital and treatment facilities in the New York region.
We have also made a significant number of new hires to expand our brokerage capabilities over the past few years, so we are now able to take advantage of the rapid expansion of the brokerage market.
What is the outlook for the market looking into 2021?
Looking ahead, we anticipate the market will continue on its current trajectory with carriers offering limited capacity in a more selective manner across multiple lines of business into 2021. Capacity will continue to tighten and rates will continue to increase in many lines of business.
Similar to previous global events that have shaped the needs of organizations, business and people, the insurance industry will continue to adapt and develop coverage solutions to serve those who need support.
We also expect to see an uptick in mergers and acquisitions among wholesalers and managing general agents, as many may struggle in this market in terms of maintaining quality carrier relationships and access to very tight capacity.
With the expectation for decline in new business startups due to COVID-19, how will the E&S market be impacted and how can it adapt?
A portion of new capital coming into the marketplace is geared toward the U.S. E&S marketplace, providing us the opportunity to bring new capacity to our clients. Furthermore, many traditional admitted insurers are refocusing their E&S distribution exclusively through selective wholesalers. These two facts alone are examples of why Burns & Wilcox remains bullish on the E&S sector.
What are new opportunities and activities, if any, that the market might see in 2021? What is the primary thing you would advise a potential participant regarding their path to success in the M&A marketplace.
In addition to the increased capital entering the U.S. E&S marketplace, emerging risks and coverage issues include:
- Continued evolution of cyber exposure;
- Drones and other potential surveillance mechanisms;
- Pandemic related coverages; and
- Cannabis/CBD coverages.
These are all in addition to some type of private/public partnership that will likely emerge as a result of the pandemic to provide a backstop of sorts that currently does not exist.
Alan Jay Kaufman (ajkaufman@hwkaufman.com) is chairman, president and CEO of H.W. Kaufman Group/Burns & Wilcox, a company committed to providing unsurpassed service to insurance brokers, agents and carriers.
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