New entrants join race for surplus lines share

XL, Rockhill and GMAC RE jockey for market share with established surplus lines writers

Katrina-sized catastrophes put added pressure on admitted carriers, which increases the demand for greater capacity in excess and surplus lines. When the need is big enough new companies enter the field. The years 2004 and 2005 were big disaster years in anybody’s book, and the E&S sector will see some growth in 2006.

“We think the E&S market will continue to grow,” Wendy Baker, president, of Lloyd’s – U.S., said. “It was around 6 to 7 percent of all commercial lines 10 years ago; since then it’s doubled.”

With an overall capacity of around $25 billion for 2006, Lloyd’s will place $10 billion of it in the U.S., and around $5 billion of that will go to surplus lines.

Baker doesn’t see Lloyd’s having trouble retaining its market share. “The admitted market had some monumental losses,” she said. “They may come back, but I don’t think we’ll see much [competition] from them in 2006, as we did in 2005.”

Lloyd’s and the other established surplus lines players are going to have some new competition, however.

XL out of the gate
On Dec. 1, Bermuda’s XL Capital announced the launch of an excess and surplus unit. John M. DiBiasi, formerly with Nautilus Insurance Company in Scottsdale, Ariz., has joined XL, as president of the operation.

XL already writes a number of specialty coverages including marine and aviation, but this is the first time the company has set up a separate entity in the area, DiBiasi explained. “E&S is a natural extension of those programs,” he noted. “It’s another slice of the pie.”

XL’s E&S policies will be underwritten through Indian Harbor Insurance Company. The new unit will provide primary casualty coverages to mid-size and large businesses.

Clive Tobin, chief executive responsible for XL Capital Ltd.’s insurance, seconds BiDiasi’s sentiment that this is a natural evolution for XL. “Our Bermuda and Dublin origins very much reflect an E&S culture,” he says. “John brings nearly three decades of industry experience and has built many strong industry relationships, especially with key managing general agents and wholesale brokers. His experience and knowledge will be critical to XL Insurance becoming a leading E&S market.”

DiBiasi said XL E&S would be writing business “exclusively through contracted wholesale brokers,” who will not have binding authority. He plans to capitalize on the experience with the brokers that Tobin mentioned to create synergies with XL. “The bottom line,” DiBiasi said, “is to trade on our [established] relationships with the wholesale brokers. Risks come and go; they change over time, but our relations with our clients and the wholesale brokers are integrated and strong.”

XL initially plans to write primary policies with limits of $1 million ($2 million aggregate). If all goes well, it would then expand to umbrella coverage with $5 million limits.

Rockhill enters the derby
Rockhill Insurance Company, another new entrant in the E&S derby, was formed following the acquisition of United Coastal Insurance Company, an excess and surplus lines carrier authorized in most U.S. jurisdictions. Rockhill Holding Company raised $145 million in capital to buy it and then renamed it. A consortium of investors including HBK Investments L.P. and Northaven Management, Inc. and certain members of Rockhill’s senior management team provided additional capital — sufficient to earn the new company an “A-” financial strength rating from A.M. Best. Rockhill commenced business on Dec. 15.

According to Chief Marketing Officer Richard Parks, Rockhill’s surplus is $125 million. He added that the company prefers “not to publicize premium objectives.”

Terry Younghanz, previously chief underwriting officer of RLI Insurance Group and GE Commercial Insurance, is the chairman and CEO. Colin Mayo has been named senior vice president and chief property officer.

Rockhill will write business on a nonadmitted basis in 47 states, developing a “balanced and diversified portfolio of property and casualty business,” mainly in primary general liability with limits up to $1 million (aggregates up to $2 million).

Rockhill will focus on six key E&S lines: professional liability, umbrella, general liability, wind, primary property and excess property. “Rockhill’s underwriting approach is, and will continue to be, defined by its focus on underwriting profit,” Parks said. “Rockhill will target lines of business with sound underwriting and pricing fundamentals where competition is intelligent and pragmatic.”

Rockhill Underwriting Management will provide underwriting and administrative services. The company will deal only with wholesale brokers, Parks said.

GMAC RE saddles up
GMAC RE, part of the GMAC Insurance Group, in cooperation with Canada’s Fairfax Financial and Clarendon, also announced a new excess and surplus lines unit called Strategic Risk Specialists. It began operations Jan. 1. GMAC said it is focusing “specifically on large property schedules and/or complex risks.”

Steve Brett, formerly the chairman and CEO of special risk operations at Fairfax, will head the new unit, which is headquartered in Napa, Calif., with offices in Hazlet, N.J., and Richardson, Texas. The Fairfax special risks property team will become full-time employees of GMAC RE. Clarendon’s role is described as “facilitating a smooth transition of qualifying business” from Clarendon to Integon Specialty Corporation or MIC Property & Casualty Insurance Corp, both part of the GMAC Insurance Group.

Topics Agencies Excess Surplus Underwriting Property Lloyd's