Business is returning to the excess and surplus lines market, but underwriting results are not what they could be, according to David Bresnahan, president of Lexington Insurance Co. Bresnahan also spoke to Best's News Service at the Risk and Insurance Management Society's annual conference in Los Angeles about the firm's fast-growing cyber product.
Q: I'd like to get your views on the overall excess and surplus market. Looking out there, what do you see today?
A: The market overall is in good shape. It's financially strong and healthy from a capital standpoint. But from an underwriting results standpoint, the profitability hasn't been what we would normally want it to be the last couple of years. Mainly driven by the natural catastrophes that occurred, not just in 2012, but also in '11. The market, it's in transition for that reason. We actually are seeing some very clear signs of a market in transition. We're seeing growth in our business for the first time since 2007. That's growth not only in the total revenues and the writings, but also in the submission activity that's coming in.
We had been moderating from exposure since 2007. And so, obviously, that went into the broader market. You fast forward four or five years and it seems like a lot of that business is now coming back into the E&S market.
Q: How do you, at Lexington, handle the changes in the market cycle?
A: Each cycle is a little different, so when I think about 2000, 2001, very clearly it had capacity leaving the market. You had a lot of dysfunction in the reinsurance market. Very different than today. Today's market is flush with capital. You have not only healthy reinsurers, but the capital market is happy to step up with cat bonds and other things as a substitute to reinsurance. Today's market transition is really more about getting the appropriate return on capital. And so, because these cycles are all different, what I tell our team is just focus on what you know. Focus on what you can control.
Fortunately for us, we've got a very, very large book of renewal business We think we have more information about rate change, exposure change. We think we see loss trends sooner than others. And so, you just have to act on the view that you have on profitability. If during certain stages that means that the book business is going to shrink and others are going to take it, that's fine.
Fortunately today, we're at a point where the rate changes are sticking. The renewal retention is sticking and our business is now growing as a result.
Q: What do you see as challenges facing the industry? How are you meeting those?
A: I think the challenge for most in the market revolves around how you're differentiating yourself from others? How are you adding value to customers? We have two things that are guiding us and driving us in that respect. One is a focus that we have on industry. We have industry groups that are clients, insureds that are agreeable to meeting with us a couple of times a year. We have the opportunity to ask them what's keeping them up at night. What exposures do they have that are being unaddressed by the market? Are there any service opportunities?
And so, through the industry focus groups we're able to drive a lot of innovation at the company.
The other thing that we spend a lot of time thinking about is not just the product, but are there ways in which we can reduce losses, mitigate claims, try to affect a client's total cost of risk and reduce it. There are lots of examples that AIG's come out with recently that fit into that area.
Q: I've heard about your cyber product. That's really being rolled out all over the world. Is that right? There's a lot of interest in cyber right now.
A: Oh, yes. It's one of our fastest growing lines of business at the company. It's being launched and it's being purchased globally. It's come with some nice innovations. We are including with the product a piece of hardware that actually helps clients reduce hacking events. It works with the client's firewall and you also have a lot of information via an app that can be loaded on an iPad or other device just to help the client's educate their workforce and reduce the exposure that they have.
And so, because we've wrapped all that around the insurance product it's selling very well for us.