By David Bull

April 30 - (The Insurer) - The E&S property market is approaching freefall territory with pricing, terms and conditions all softening amid a surfeit of capacity from domestic, London and Bermuda markets, despite concerns over tariff-driven loss cost increases and forecasts for an active hurricane season.

Broking and underwriting sources, quarterly earnings commentary from executives and market reports all appear to be aligned in predicting an acceleration of softening conditions at mid-year renewals.

Anecdotally, underwriting sources have suggested most loss-free deals are down by 20% or more, with even more pronounced softening for large shared and layered accounts, with concessions around terms and conditions as well as rate.

Even some loss-affected accounts are seeing reductions, they added, including a number that were hit by Hurricane Helene or Hurricane Milton last year.

And there are no signs that the California wildfires in January have affected market conditions beyond the state’s homeowners market.

In its earnings presentation this week, Brown & Brown reported that property catastrophe rates on deals placed by its wholesale division decreased in the range of 10% to 25% in Q1. The broker added that the pace of softening could accelerate in the second quarter due to the availability of capital with an appetite for the risk.

Sources acknowledged that potential increases in rebuilding costs as a result of the tariffs should have had a greater impact.

“But people are ignoring discipline due to growth goals across the industry,” said a senior underwriting executive.

A wholesale broking source added that the potential for economic contraction would act as a double whammy for the E&S property market, leaving a smaller pool of premium for growth-hungry markets to fight over.

Amwins in its most recent report on the E&S property market said: “Common sentiment is that this is one of the most rapid erosions of property market conditions in decades.”

The company said that incumbent carriers are fighting hard to retain business and are now more commonly giving up price to secure renewal orders, with shared and layered accounts often 150% to more than 200% oversubscribed in some or all layers.

“Pressure on terms and conditions is simultaneously increasing, including a heavy focus on deductibles, blanket limits, expansion of coverage in general, a return to program concurrency and the removal of restrictive provisions,” said Amwins.

It added that carriers and MGAs are “heavily focused” on account retention and premium growth in the E&S property market, which is driving “extremely competitive” conditions.

There is also an impact from “meaningful” amounts of capacity coming from new carriers and MGA entrants in addition to increased line sizes and appetite from incumbents, the report added.

Speaking on E&S Insurer’s “A market in uncharted territory” webinar earlier this month, Amwins CEO Scott Purviance said: “It’s quite astonishing the magnitude of the moves in the property market.”

He added: “We all know how quickly it went up in 2023 and we started seeing some mitigation and softening in 2024 and while you can probably very much still say rates are adequate for exposure in most geographies today, it's amazing the loosening of terms and conditions, the increasing of limits that are being deployed, the definitions on distance to coast.

“Heading into cat season there's a lot of capital out there that wants to write business and is doing things to write business.”

Speaking on the same panel, Chrisopher Lewis, head of E&S at Zurich North America, noted that the California wildfires and elevated severe convective storm activity have had no real impact on dynamics in the wider E&S property market.

FRAGILE MARKET

Despite the steepening downward trajectory, broker and underwriting sources agreed that with carriers giving up significant ground on terms and conditions – including deductibles – and no sign that reinsurers will lower retentions, a major loss could have a greater impact on primary insurers and turn market dynamics around again.

“One storm could be big for the industry and change market conditions,” said one senior broking source.

Purviance commented that overall, this is “the year” to be a buyer of property cat capacity.

“You've come off an extended hard market period, and things got a bit easier in the second half of 2024 but we're going to see a lot of opportunity to restructure programs and save some money (for buyers) here in 2025 bar something changing pretty quick.

“Now I do think it's somewhat of a fragile market. If you look at the capacity that contracted and left post the fall of 2022 and in 2023, I think if we have another big wind event, I think the market will snap right back to being a capacity-constrained situation,” he suggested.

Lewis described the E&S property product as “adequately priced”, adding that there is sufficient margin for it to be written profitably.

“Given the expected increase in replacement costs we’re talking about with the tariffs, we think that we’re getting to a point where companies are going to start to pull back a little bit in the terms of the amount of capacity they are willing to support.

“So it’s not a prediction, but I think we’re identifying some inconsistencies between where rates are going and where loss costs are going in terms of where margins are long term,” he said.

Meanwhile, Axa XL’s recently appointed head of wholesale solutions Tim Whisler said he agreed that one event could change the market.

He also noted that reinsurance attachment points stayed consistent at January 1, 2025, after the step change seen two years ago. This means that a greater ratio of any loss is likely to be retained by primary property insurers.

“Companies just have to be very comfortable taking that cat without passing on directly to the reinsurers, and I think ultimately a large event does impact the primary insurance market pretty significantly,” Whisler commented.

COMPETITION FROM MGAS

In first-quarter earnings commentary, RLI chief operating officer Jen Klobnak described E&S property insurance as the most competitive product in the carrier’s portfolio. She added that cat wind rates remain “very well priced” despite aggressive competition from MGAs.

“The property insurance market is known for large catastrophes and short memories, and the current market conditions reflect this. Competitors, particularly MGAs, who are compensated on top-line growth, are very aggressive in the Florida wind market,” the executive reported.

She said that MGAs have increased capacity and expanded terms and conditions while “slashing rates”, reporting that cat wind rates were down 14% in the quarter.

E&S specialist Kinsale said it also saw “intense competition”, including from some admitted carriers, with rate declines from the peak of about 20%.

“The margins in this business are still strong, but we expect to write less premium compared to the prior year for the near term,” said chairman and CEO Michael Kehoe.