Upland's Second Half 2024 Market Outlook
Favorable underwriting results for the first half of 2024 helped influence AM Best to revise their initial 2024 outlook from Stable to Positive for the US excess and surplus lines (E&S) market. Admitted carriers continue to tighten underwriting criteria leading to specialty accounts seeking coverage from non-admitted E&S carriers.
The outlook for the E&S insurance market in 2025 is quite positive. The market is expected to benefit from a strong need for customized coverage solutions for complex and high-risk businesses, particularly in areas like commercial auto and directors & officers' liability.
The E&S insurance market also faces several challenges despite its growth. “Economic and social inflation are significant issues, driving up claims costs and impacting profitability,” stated Jim Damonte, President of Insurance Operations. “The rise of "nuclear verdicts" in litigation with exceptionally high damage awards particularly affected excess casualty and transportation lines.”
In total, E&S premiums constituted 9.2% of the country's total direct premiums written in2023, compared to 8.8% in 2022 and 5.2% at the end of 2018.* The USE&S market increased 14.5% in 2023, down from the peak year-over-year increase of 32.3% in 2021 and 20.1% in 2022. E&S direct premiums written totaled $86.47 billion during the most recent year compared to $75.51 billion in 2022. The bulk of E&S premiums in 2023 were written within multiple casualty liability coverages (52.5%), property lines of business (31.7%) and commercial auto (5.4%).*
Commercial primary general liability, excess casualty, professional liability errors and omissions (E&O) and cyber liability accounted for roughly half the total of E&S premiums in2023. For the first time in five years, product, medical professional, and “other” liability year-over-year premiums did not grow by double digits in 2023.
Claims Outlook
“Upland’s claim incoming and inventory remain consistent and within expectations for its expanding business,” said Rich Smith, Chief Claims Officer. “Through the first 6 months of 2024, the monthly incoming claim volume has increased by 16%, however, over the past three months, monthly incoming claim volume has seen a 14% decrease.” The main driver of the Q2 over Q1 2024decrease was Primary Construction (-5%). Excess trucking increased slightly quarter over quarter, but monthly reporting has essentially remained flat since March 2024. The use of telematics and focus on lead primary carriers has led to positive claims outcomes across the book. For Primary Construction in New York, risk transfer continues to be a success through our aggressive stance in the marketplace. Outside of excess trucking and New York construction, other lines of business have remained flat through the first half of 2024.
“For 2025, Upland expects continued consistency in claim reporting, claim severity, and claim outcomes that follow Upland’s business growth and line of business mix,” added Mr. Smith. “Severity is expected to remain the driver for excess lines reporting, while frequency should remain the driver for primary lines. Excess Trucking is the most mature of Upland’s lines of business, and therefore is expected to remain stable from both a reporting and outcome perspective.” Changes in reserve philosophy and timing are not expected.
Capacity Outlook
The US E&S insurance market capacity has been efficiently operating as a safety valve due to the declining capacity in both the commercial lines and personal lines markets. There is a significant shift from the admitted space to E&S as the market follows capacity due to availability of coverage and capacity, not price. This trend is primarily driven by rising claim costs due to factors like weather events, increased litigation costs, and supply chain disruptions. “We are seeing a shrinking capacity for certain specialty E&S products, and it has created an environment that is harder and more expensive for insureds to get coverage,” added Kate Walas, Chief Underwriting Officer. “This makes it even more essential that insurers be more diligent in their risk selection, underwriting, and pricing strategies to maintain stability and growth.”
In the following content, Upland’s underwriting leadership has provided their market outlooks for the following risk environments:
· Casualty Construction
· Primary General Liability
· Professional Liability Errors& Omissions
· Excess Cyber Liability
Casualty Construction Market Outlook
“While supply chain disruptions and material prices have been more predictable recently, skilled labor shortages, higher interest rates, and tighter financing requirements are still creating headwinds for the construction industry.” stated Carl Dowling, Senior Vice President, Casualty Construction Liability Underwriting. “As such, the US construction market is expected to face a complex landscape of challenges and opportunities throughout the rest of this year and for the foreseeable future.”
High interest rates, tighter lending standards, regulatory changes, and political uncertainty have all been cited as factors in delaying, changing, or cancelling planned construction projects. Commercial construction in NYC and the residential condominium market in Florida are both perfect illustrations of the culmination of each of these challenges.
Legislative initiatives such as the Infrastructure Investment and Jobs Act, Inflation Reduction Act, and CHIPS Act are expected to boost construction activity in certain sectors such as infrastructure, energy-efficient building construction, green energy production, as well as semiconductor facility and industry adjacent construction. The funding of these legislative programs is in excess of $1 trillion dollars and is expected to stimulate economic development by creating millions of jobs in the construction industry over the next decade.
Florida has had the fastest growing population in the country over the past few years, and over the same time period, housing prices have skyrocketed by approximately 58%. While inland, single-family home construction remains steady, the condominium market is currently being adversely impacted by the passing of Senate Bill SB-4D, high condominium association fees and assessments, the high cost and limited availability of coastal insurance, and high interest rates with tighter lending requirements. The estimated impact of these factors is a 20% decline in condominium sales from the prior year with some expecting that number to increase by year end.
In NYC, commercial construction has been impacted by commercial vacancy rates that are double what they were in 2020, high interest rates and tighter lending requirements are making refinancing of current commercial loans more difficult. “When sales slow or vacancies increase, contractors pull back.” concluded Mr. Dowling.
Primary Liability Market Outlook
“Growth opportunities continue to present themselves within the general casualty segment of General Liability, but it remains imperative that underwriters continue operating with discipline to properly navigate this market.” stated Daniel Lee, Senior Vice President of Primary General Liability (GL). “This segment of business has seen challenges due to adverse experience in prior years, particularly impacting certain classes such as restaurants, hotel/motel, & retail.” Depending on a carrier’s appetite strategy, this may be reflected in a more pronounced mix of new business submission growth coming in from these areas. This trend is at least partially a by-product of corrective book action taken by some carriers, and as such, underwriters should continue to anticipate a meaningful mix of risk quality within these industries. “In the same vein, there are quality accounts in these areas that are being forced to find new GL carrier partners. Underwriting vigilance around risk selection & pricing will be critical to success.” Add Mr. Lee.
Despite real challenges around economic pressures and social inflation, underwriters can execute plans for profitable growth by not losing sight of basic blocking and tackling. Risk selection, pricing discipline, vigilance around terms & conditions, excellence in policy servicing, and depth of customer relationships will continue to be paramount in achieving financial goals. While modernization and advancements in technology will aid in improved underwriting processes, organizations that can consistently execute on the fundamentals of underwriting & sales will be best positioned to hit target results.
Excess Cyber Liability Market Outlook
The recent CrowdStrike incident, which was caused by a faulty sensor configuration update and led to a widespread outage, has significantly impacted the cyber insurance market. Although CrowdStrike quickly resolved the issue, the incident has underscored the vulnerabilities in cybersecurity and the interconnected nature of digital systems. This event has led carriers to closely examine policy wording, especially regarding coverage for “system failure” and non-malicious events. “Because this is the first actual “systemic loss” we have seen, the market will pay close attention to the Business interruption losses and dependent business interruption losses.” said Jackie Lee, Senior Vice President, Excess Cyber and Professional Liability Underwriting. “These claims will test the nuances of policy coverage and policy wording. This event serves as a reminder of the evolving nature of cyber risks and the importance of comprehensive, well understood cyber insurance coverage to mitigate these risks effectively.” We expect to see a robust cyber market continue for the duration of 2024 and well into 2025
Professional Liability E&O Market Outlook
The professional liability market is ever expanding with new businesses being founded by experts in their fields each day. “In the past couple of years, we have seen a large influx of startups requiring the purchase of errors and omissions (E&O) coverage. We expect this trend to continue in 2nd half of 2024 and into 2025, as remote work and advancements in technology have allowed experts to build their businesses in far reaching geographies,” said Steve Adam, Senior Vice President, Professional Liability Underwriting.
Evolving trends that we continue to watch closely include state, federal and industry specific regulations impacting our target classes of business. Particularly, we are keeping a close eye on privacy, consumer protection, emerging tech, and AI. Social inflation and nuclear verdicts have been leading to rising settlements and overall higher legal fees. Also, pressure on pricing and market driven coverage expansion in terms and conditions have been challenging the market.
The professional liability market is evolving with new entrants providing an influx of capacity during certain time periods. Rate adequacy remains top of mind and bottom-line underwriting remains Upland’s strategy.
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About Upland Capital Group
Upland Capital Group, Inc. is an AM Best rated “A-” VIII specialty property/casualty insurer headquartered in Dallas, Texas. Through its wholly-owned insurance carrier, Upland Specialty Insurance Company, the company markets, underwrites and services specialty insurance products in select markets to include excess transportation, casualty construction, excess casualty, primary general liability, excess public entity, professional liability errors & omissions, and excess cyber liability.
Media Contact: Blake Zipoy, Director, Marketing and Communications, bzipoy@uplandcapgroup.com
Additional Sources: *S&P Global as of 4/20/24, AM Best