YE 2015 Market Report

Executive Summary

As we move into 2016, the industry continues to ride the waves of surplus capacity, softening pricing and mergers and acquisition activity.

An abundance of capacity in the marketplace continues to drive soft rates. As carriers compete for new accounts and try to maintain their positions as incumbents on renewals, we continue to see rate decreases across most lines. These rate decreases have been offset somewhat by the global economy’s continued improvement, which is boosting exposure units and helping to generate positive premium growth.  

The industry’s abundance of capital has led to increased mergers and acquisitions as companies look to broaden their product offerings, geographic reach, and market share. The ACE Chubb merger has closed and the next quarter should reveal the impact of such a mega transaction.  In addition, AIG announced a management proposal on January 26, 2016 outlining a reorganization designed to achieve better efficiencies*. It remains to be seen how the combination of two already formidable, geographically and culturally diverse underwriting forces, as well as the AIG reorganization, will impact the industry on numerous fronts. Further consolidation is a likely trend into 2016.

We hope you find this YE summary report of marketplace conditions useful and informative. Its contents include:

  • Market Overview: provides high level summary of year end developments by market segment.
  • Industry Overview: offers a macro look at the Property & Casualty marketplace through analysis provided by ALIRT Insurance Research, which specializes in the analysis of insurance company financial performance trends.
  • Detailed Market Overview: includes deeper commentary and observations by specific market segments.


* A review of the proposal written by ALIRT is located in the appendix of the PDF version . 

Market Overview*


Although tragic airline losses have dominated aviation insurance results over the past year, these catastrophic losses have not yet had a negative impact on pricing or capacity. The reinsurance market continued to soften throughout 2015, with competition driving down rates on desirable classes of assets. Despite the consolidation of a handful of markets impacting aviation, capacity of over 200% was available and premium rates for general aviation, products liability and airlines experienced a flat to slight decrease. The soft market, including rate reductions, is expected to continue into 2016. 


Premium increases for workers compensation were marginal, and we saw mostly flat to slight decreases for general liability, automobile liability and umbrella and excess liability lines. Capacity increased slightly in the umbrella and excess liability markets with new entrants in Bermuda and London markets. Global capacity remained in excess of $1 billion. If the workers compensation combined ratio of 96% continues, it should positively impact workers compensation rates going forward. 


The Entertainment Contingency insurance market in London wrote a broad range of coverages, primarily concentrated upon cancellation/ interruption coverage for music concerts and festivals, theatrical and film productions, conference, exhibitions and sporting events. Pricing was driven down by new market entrants, which led to broader coverage offerings and an easement of normal policy terms and conditions. Premium rates were mostly flat with slight decreases except in the fourth quarter when they hardened slightly. Rates are expected to increase in 2016 and capacity is expected to remain sufficient.


The market remained stable and competitive throughout 2015 and is expected to continue to be stable into early 2016. A number of carriers offered pollution liability and contractors liability with flat to double-digit premium and rate decreases. Capacity was abundant with availability in excess of $400 million.  

Foreign Liability

Premiums remained mostly flat for all lines throughout 2015. The limited nature of the foreign liability market offers fewer partner choices but not necessarily reduced capacity. Comprehensive coverage remains available and premiums are expected to remain flat in 2016 with adjustments based on exposures and loss history.


Premium rates were flat or experienced a slight decrease throughout 2015 for medical professional liability, managed care E&O and medical stop loss liability. There is an abundance of capacity in the marketplace with new market entrants, as well as the willingness of current markets to expand their capacity. A record high reinsurance capital and stable to weak growth in reinsurance demand is expected to continue to drive softening in the global reinsurance market for medical professional liability. The competitive market environment is expected to continue into 2016, driven primarily by surplus capacity, with pricing stable to slightly decreased in most venues.

Management Risk

Directors and Officers pricing remained competitive with prices declining or coming in flat across most industry segments; capacity remained abundant. The employment practices liability, fiduciary liability, commercial crime and financial institution bond markets remained stable with abundant capacity and flat pricing. Cyber liability was the most active and volatile area of management liability in 2015; the market remained hard as carriers continued to price on a reactive basis to high profile and severity breaches.

Marine Cargo & Hull and Liability

Underwriting results continued to be favorable for marine cargo accounts without storage risks through 2015. Premium rates for marine cargo were flat or slightly increasing and marine hull and liability rates were flat or slightly decreasing. For marine cargo, rate reductions were the norm for accounts with 3-year loss ratios under 60%. Coverage terms were extremely broad with many markets agreeing to broker manuscript “all risks” policy forms. Capacity was abundant, and coverage conditions for marine hull and liability remained mostly unchanged. A continued soft market with rate reductions is expected to continue on loss-free accounts and accounts without storage risk. Accounts with losses will likely see nominal rate increases.


Premium rates were flat to a 15% decrease through the end of 2015. The market environment remained competitive and capacity continued to grow. Merger and acquisition activity was high, following announcements of mergers between major market players. In the absence of notable natural catastrophes, capacity surplus and competitive rates are expected to continue into 2016.


Premium rates were flat or slightly decreasing through the end of 2015. New companies continued to enter the market and reinsurance continued to be a buyers’ market. Competition in certain sectors continued to put pressure on rates. The surety industry as a whole is positioned to meet underwriting losses due to strong balance sheets and spread of risk via multi company participation and the judicious use of reinsurance. Increased M&A activity and major challenges are expected for the surety industry in 2016 as the energy industry, a heavy user of surety credit, is impacted by plunging coal, oil and natural gas prices.

Transportation and Logistics

The transportation insurance marketplace remained highly competitive, which kept rates and premiums for Logistics Liability policies stable. Renewal premiums remained steady. Markets expanded their product offerings and capacity increased throughout much of 2015, but began to level off in the last quarter. In early 2016, U.S. Customs Bonds rates are expected to remain flat, lower insurance premiums and broad coverage are expected to be available for logistics liability policies, and strong competition will likely force insurers to keep rates and premiums stable.


We hope you find this quarterly report of industry observations useful and informative. More detailed commentary on market developments by segment follows.

* This publication contains a summary of our observations about each market segment as a whole. The experience of any particular individual or entity may vary.

Taking the Industry’s Temperature

The “Big Picture”

The P&C industry reported slightly improved underwriting profitability through the first nine months of 2015 (9M15) vs. year-end 2014, with prior year reserve releases offsetting weaker accident year results driven by storm-related losses. Operating earnings and returns in 9M15 deteriorated relative to the results of the prior two year periods. Surplus showed a modest decline and annualized premium growth continued to slow through 9M15. Total investment return deteriorated in 9M15 as well, as net investment yield continued its decline and the top 50 insurers incurred net capital losses through 9M15.

Featured Commercial Lines Carriers 

Green line represents 13-year average total ALIRT.

  1. ALIRT’s scoring range is zero to 100, with a higher score representing stronger relative financial strength/performance.
  2. The blue shaded area in the chart to the left represents the average “solvent company” Score range (39 – 61) within ALIRT’s Model.
  3. The historical average Score for ALIRT’s P&C carrier universe is 50, represented by the green line on the chart to the left.

Positive Developments

  • Prior year reserve releases remain substantial.
  • 9M15 reported underwriting results were somewhat more profitable than at year-end 2014.


ALIRT P&C Composite Underwriting Performance 

After substantial improvement in 2013, accident year U/W results deteriorated slightly in 2014 and again in the first nine months of 2015 (9M15) due to weather related losses. The reported combined ratio improved slightly through 9M15, again benefitting from reserve releases. 

ALIRT Commercial and Personal Lines Composite Indexes 

The ALIRT P&C Composite Index tracks industry financial performance for commercial and personal lines writers. These ALIRT P&C Composite Index Scores are still fairly robust and reflect the current solid financial profile of the broad P&C industry. 

Negative Developments

  • Commercial lines rates declined in 2Q and 3Q 2015.
  • Premium growth (net & direct) continued to slow in 9M15.
  • Industry operating profitability fell slightly in 9M15 despite continued reserve releases.
  • Surplus showed a modest decline through 9M15.
  • The effects of reserve releases on reported results declined in 9M15, benefitting the reported combined ratio by 2.2 pts through 9M15 vs. 3.3 pts through 6M15.


ALIRT P&C Composite Direct Premium Growth 

Direct premium growth slowed in 2014 and again during 9M15 (annualized), reflecting in part ebbing rate increases or modest rate decreases. In addition, economic growth remains somewhat anemic. 


Commercial Lines Pricing
Weighted Average of CIAB, CLIPS & Market Scout Surveys 

Overall Commercial Lines rates declined slightly in both the second and third quarters of 2015. The first overall rate declines since 1Q 2011, but rate growth had slowed considerably over the last two years. 



Premium Overview*

Coverages Rate change Q3 2015 Rate change Q4 2015
General Aviation Flat to slight decrease Flat to slight decrease
Products Liability Flat to slight decrease Flat to slight decrease
Airlines Flat to slight decrease Flat to slight decrease

*Based upon individual loss ratios and exposure base


Despite a number of airline losses, aviation remained one of the safest forms of travel with over 87,000 aircraft flights daily in the U.S. alone. The overall safety record of the industry and the standards imposed by the FAA (and similar regulatory bodies outside the U.S.), as well those developed by industry groups such as the International Air Transport Association, give underwriters of aviation insurance a high degree of comfort regarding the risks of loss associated with aviation operations.

While airline risks and losses garner a lot of media attention, aviation insurance encompasses a wide range of risks including aircraft operations of many types, manufacturing and even satellite and spacecraft risks. Most underwriters do not limit themselves to one narrow aspect of aviation risk and thus have a spread of risks in their portfolio. 

Pricing & Capacity Overview

The relative safety of the aviation industry, as well as abundant capacity, negated any potential impact on pricing in the aviation insurance market. The soft rating trend continued throughout 2015 for several reasons:

  • The past two years were relatively quiet from a “CAT” perspective in other market classes. 
  • Capacity was plentiful (available capacity exceeded 200%) and continues to grow as new entrants move into the aviation space. Despite the consolidation of a handful of markets impacting aviation, capacity was not reduced.
  • Carriers are hungry for new business and competition is driving down rates on desirable classes of business/accounts.
  • The reinsurance market continued to soften due to an influx of alternative capital from pension funds and other sources. 


Capacity and competition for market share will continue to drive rates; rate reductions are prevalent and anticipated to continue into 2016. Any expectation for a hardening of the market would be precipitated by consolidation of markets and a significant reduction in the available capacity.


Premium Overview

Coverages Rate change Q3 2015 Rate change Q4 2015*
Workers Compensation Flat to slight increase Flat to slight increase
General Liability   Flat to slight decrease Flat to slight decrease
Automobile Liability Flat to slight decrease Flat to slight decrease
Umbrella/Excess Liability Flat to slight decrease Flat to slight decrease

*Based upon renewal with incumbent market. Greater rate decreases/broader coverage terms may have been achieved with a marketing effort.

Market Overview

Workers Compensation, General Liability and Automobile Liability

Generally, if a primary casualty program was put out to competitive bid, rate decreases were obtained. For loss sensitive programs, underwriters continued their efforts to push for optimal retentions / deductibles.

Umbrella and Excess Liability 

During the final two quarters of 2015, there were moderate rate increases for the more volatile classes of business. For those accounts in the softer categories, competition resulted in rate decreases and coverage terms. 

Capacity Overview

There was a slight uptick in market capacity with some new entrants in the Bermuda and London markets. Global capacity remained in excess of $1 billion. Underwriters continued to look to ventilate their capacity throughout the excess tower.


During the fourth quarter of 2014, the Workers Compensation combined ratio was 96 percent, marking only the second time in 20 years it was below 100 percent. If this trend continues, it should have a positive impact on Workers Compensation rates going forward. In addition, some carriers are providing greater credit authority to underwriters, which will allow greater flexibility with regard to collateral. 

Developing topics to watch include: 

  • Increase in California claim frequency: increased by 3% from 2010-14 while there was an 11% decrease in frequency during the same time in NCCI states.
  • Medical marijuana in the workplace.
  • Greater acceptance of surety bonds in lieu of letters of credit.
  • Workplace violence: clients are taking more precaution by investigating additional security services, e.g. armed guards. 
  • Unmanned aircraft: concerns surrounding invasion of privacy exposures for commercial use of unmanned aircraft; some casualty insurers are adding exclusions for this exposure (BI/PDP).
  • Recent changes at insurance carriers: including the completion of ACE’s acquisition of Chubb. 
  • Cyber/privacy coverage: casualty carriers have been keen to restrict any cyber/privacy related coverage added within the Commercial General Liability coverage form by adding restrictions to the Personal Injury coverage part. This has been in process for the past few years with almost all carriers now adopting endorsements that amend ISO wording.

Entertainment Contingency

Market Overview

The Entertainment Contingency insurance market in London wrote a broad range of coverages, primarily concentrated upon cancellation/ interruption coverage for music concerts and festivals, theatrical and film productions, conference, exhibitions and sporting events. 

The music industry, in the last five years, has witnessed a steep increase in touring activity as the development of free media and low cost music purchases to the public have driven down artist revenues from record sales. The music festival market has seen even greater growth within this period. 

There have been some significant market losses within the contingency area in recent years. Artist illness and accident claims have been widely reported in the media and weather related losses in North America for 2015 have been considerable set against previous years.

Pricing and Capacity Overview

Recent years have witnessed deteriorating loss ratios for insurers due to reduced rating and excess capacity in the market. There have been a number of new entrants into the market and their desire to establish an account has not only driven pricing downwards but has led to broader coverage being offered and an easement of normal policy terms and conditions. 

In general terms the market rates for the first quarter of 2015 were flat with some small decreases, the second quarter remained flat but the third quarter began to show a slight increase, without it being adopted by the market uniformly. The fourth quarter indicated a slight hardening of rates and strengthening of terms but not to the extent that had been previously forecast.


There are some tangible signs that the market is going to look to increase rates in 2016. It should be anticipated that not only will rating increase but there will be more onerous policy terms and conditions applied by insurers. The treaty renewal season will be a challenge for a number of insurers within the contingency market exhibiting poor multi-year loss ratios. Capacity has remained stable, with some isolated increases for the better performing syndicates and will remain largely sufficient for purpose. 


Premium Overview

Coverages Rate Change Q3 2015 Rate Change Q4 2015
Pollution Legal Liability/Site Liability Flat to 25% decrease Flat to 25% decrease
Contractors Pollution Liability  Flat to 25% decrease Flat to 15% decrease

The market remained relatively unchanged from Q3 to Q4. The number of carriers offering pollution liability and contractors liability coverage remained abundant. Depending on the marketing strategy for renewals, insureds experienced flat to double-digit premium and rate decreases.

Market and Coverage Overview

There are approximately 25 markets offering Environmental coverage, with a reduction in carriers providing 10-year policy terms for “transactional” policies. Carriers offering longer terms implemented minimum premiums, regardless of risk or limits (generally $85,000).

Capacity in the market was abundant with availability in excess of $400MM. Certain carriers reduced exposure by decreasing overall limits on some risks (e.g., $50MM expiring limit, offering only $25MM on renewal). Annual or shorter-term “renewable” policies were competitively-priced with broader terms and conditions being offered on certain classes of business like real estate and healthcare.

Underwriters provided increased flexibility and tailored coverage for industry-specific risks. More stringent underwriting guidelines existed for development projects, especially for sites with known issues, industrial properties, and urban projects. Mold was standard in many forms and often included in coverage with less underwriting information than previously required.

Lender requirements for new or refinanced assets remained a driver for insurance. Environmental insurance continued to be used to back up indemnifications or to sit in excess of an indemnity agreement and escrow, especially where known or suspected conditions were present.

Increased competition on renewals decreased premiums/rates by up to 25% (depending on the marketing strategy). With respect to rate, incumbent carriers appeared to be at a disadvantage, usually keeping the rate flat, but often broadening coverage where possible. Even with rate decreases from other carriers, some insureds elected to renew with the incumbent due to continuity and other business relationships.

As the real estate market maintained its upward trend, especially in select urban areas, and merger & acquisition activity continued, there was an increased reliance on environmental insurance. There was also an increase in the number of claims, especially on policies placed more than five years ago.


The Environmental market is expected to remain relatively stable and consistent throughout the first quarter of 2016. However, as two of the larger environmental carriers merge underwriting units (ACE and Chubb), the risk appetite may change. As a result of their internal restructuring and reorganization, AIG is no longer offering its site-specific Pollution Legal Liability insurance policy.

Foreign Liability

Premium Overview

Coverages Rate change Q3 2015 Rate change YE Summary 2015*
General Liability - Master  Flat Flat to slight decrease
General Liability - Local Flat (based on minimum premiums and/or exposure based allocations) Flat (based on minimum premiums and/or exposure based allocations)

Rate changes for other coverages contemplated within this section remained flat throughout the third and fourth quarters, i.e., Contingent/Excess, Automobile Liability, Foreign Voluntary Workers, Compensation/Contingent and Employers Liability.    

Market Overview

Recent renewal cycles during the 2015 calendar year have shown that despite marketing efforts, carriers operating in the Foreign Liability market came very close to each other in terms of program pricing. A contributing factor was that a large portion of premium relates to local policy costs, which are either minimum premiums per country or exposure based allocations.

Capacity Overview

The Foreign Liability marketplace is limited and while this does not affect “capacity” in terms of limits of liability, it could affect choosing a partner market. The main carriers in this space can all offer the pricing, terms and conditions that clients seek. 


Premium Overview – Rate Change


Q3 2015

Q4 2015
Medical Professional Flat to slight decrease Flat to slight decrease
Liability Flat to slight decrease Flat to slight decrease

Managed Care 


Q3 2015

Q4 2015

E&O                              Flat to slight decrease Flat to slight decrease

Medical Stop Loss


Q3 2015

Q4 2015

Flat to slight decrease

Flat to slight decrease

Marketplace Overview

The Medical Professional liability coverage line has been commonly regarded as one of the most profitable in the property/casualty marketplace for several years. The Conning Report (produced mid-year 2015), reported that Medical Professional Liability was expected to produce a return on equity of 7.6% in 2014; however, they also note that this is down from 9.5% in 2013 and double digit levels maintained from 2005 to 2011.

Preliminary results reflect a decrease in premiums of 2% in 2014 and are expected to decrease another 1.5% in 2015, but losses continue to trend higher and are expected to increase 4% in 2014 and are projected to increase 5% in 2015.

There is continued uncertainty around the impact of healthcare reform and the demand for medical services leading to pressure on physicians and healthcare providers, creating additional risks.  As the risk of claim frequency rises, medical providers and healthcare systems are faced with a potential rise in multi-million dollar lawsuits.

Healthcare Reform is a major driver in consolidation and integration among hospitals. Regardless of the ultimate fate of the Affordable Care Act (ACA), it is expected that the merger and acquisition trend will continue.  Today, not-for-profit organizations and local governments operate approximately 80 percent of the roughly 4,500 hospitals, while for-profit companies operate 20 percent of hospitals.  The number of independent hospitals represents a staggering amount of fragmentation as they struggle to remain viable, while they are being forced to find new ways to reduce costs, improve quality, and spend more on compliance, technology, and cybersecurity.

The movement of physicians from private practice into hospitals and other large institutions persisted in 2015. Traditional physician insurance companies continued to lose market share to captive insurance companies and Risk Retention Groups. Smaller physician groups continued to merge with larger provider organizations driven in large part by reimbursements tied to efficiency of care and investments needed because of the required use of electronic medical records.  Physicians aligned with physician extenders, such as physician assistants and nurse practitioners.

Regarding loss trends, loss severity continued to increase across the United States, amidst concerns that loss frequency would increase as the influx of new patients impacted providers stemming from the ACA, simultaneously with the shortage of physicians and the expanded use of physician extenders. 

With cyber-attacks making recent headlines across all sectors, the healthcare industry has been significantly impacted from a customer privacy perspective. As a result, cyber insurance premiums written could more than triple to $7 billion by 2020 (according to PwC). Healthcare has been one of the leading industries for cyber liability/privacy protection as this product has developed over the last few years. An increasing awareness of how profitable medical records can be to the criminal element since they are rife with personal health information (PHI) and personally identifiable information (PII), with recent high profile and expensive data breaches, drove an increase in rates for the first time. Increases of 10-15% were not unusual and higher limits attracted rates, which do not drop off as sharply as we move through the excess layers. Excess underwriters were being asked to include cyber coverage in their HPL/GL layers, which caused some concern. A large cyber loss could potentially eliminate limits that are established and underwritten more for HPL risks. For this reason, only a handful of underwriters agreed to include cyber in their excess limits and in doing so, even fewer will include first party cover.

Managed Care E&O

Managed Care Organization E&O is a growing area of exposure. The exposure of large health insurers is a recognized field, but new exposures are developing within healthcare systems and large physician groups as they grow in complexity. These structures are forming Accountable Care Organizations and their own insurance companies to write health benefits, and participating in contracts with insurance companies in which providers assume expanded responsibility for disease management, enrollee tracking and management, and advisory services to outside practices.

Underwriters are concerned about current or future claims alleging:

  • Anti-trust 
  • Design and/or administration of cost control systems (incentives, quotas, etc.)
  • Down coding (insufficient revenue to providers) and allegations of deliberate slow reimbursement
  • Civil rights actions from patients denied care 
  • Allegations of miscalculation of medical expense ratios

Capacity from insurers that typically specialize in MCO E&O continued largely unchanged from 2014. A significant exception was Umbrella underwriters, who were increasingly willing to provide excess coverage, although the coverage was less robust than MCO E&O policies.

Premium rates were stable, and followed the increase or decrease in exposures, absent a compelling claim or change in risk profile.

Medical Stop Loss

The medical stop loss market showed relatively minimal changes in market dynamics through 2015; the market continued to be soft. 

These types of market conditions present the insurance and reinsurance industry with continued challenges and opportunities for innovation. A few ongoing trends and updates to note in regards to the Medical market in general and the Provider Stop Loss and Employer Stop Loss markets are: 

  • Lingering uncertainty about newly insureds:
  • For the 2015 open enrollment period, there were 12 million Americans on the State and Federal exchanges.
  • Markets continued to constantly evaluate the available data to enhance their understanding of the new risk.
  • Catastrophic Claims
  • Consistent frequency and severity for Commercial, Medicare, and Medicaid lines of business continued to appear. 
  • Specialty Pharmacy 
  • Costs rapidly increased. High cost medications such as Sovaldi caused concern among employers, providers and health plans across the United States. 
  • Self-Funding
  • Since the ACA passed, there has been significant interest in self-funding. We have seen many fully insured plans contemplate and successfully transition to self-funded plans. Benefits of self-funding include more control over the plan document, less regulation, and flexibility to choose providers and networks that best fit the plan. Additionally, the ACA implemented the removal of limits, making Stop Loss Reinsurance a tailored solution for protecting those plans that elect to self-fund.

New Products for Healthcare Organizations

  • Healthcare Self Insured Liability Policy
  • A new product, developed by Integro with Lloyd’s capacity, addressed increasing concerns about the liabilities faced by a healthcare institution in how it handles claims with and on behalf of physicians (both employed and non-employed).
  • Axis Insurance developed an enhanced business interruption/extra expense product stemming from medical catastrophes, including pandemics.  


The persistent softness of the market continues to present challenges to medical professional liability insurers despite record profits and low loss ratios. In order to remain competitive, markets have been forced to decrease rates and premiums. This accommodation, driven by external forces, may prove to be short sighted if loss development escalates in future years. There is an abundance of capacity in the marketplace with new market entrants, as well as the willingness of current markets to expand their capacity. 

The outlook for 2015 and 2016 is looking increasingly uncertain for underwriters. Claims inflation, the effect of batch claims, challenges to tort reform, increasing coordination by the plaintiff attorneys, all in the context of a shrinking client market, oversupply of insurance capacity, and a reduction in the availability of reserve releases are factors leading to increased discomfort by underwriters who are nonetheless keen to maintain long held client relationships.

Clients recognize the importance of their long-term relationships with their incumbent underwriters and this is a key factor in their renewal decisions. While competitive markets may offer terms and conditions at reduced pricing, clients do not always elect to bind with the lowest option, but consider other factors, such as the bank of money they have with the incumbent underwriters to pay claims in the future, risk management services or dollars the underwriters can offer to support the client’s risk management educational efforts, and the incumbent underwriters willingness to work with the client in designing a program structure that can evolve with the changing healthcare landscape.

The movement of physicians from private practice to hospitals and other large institutions, most of whom self-insure their liability exposures, is expected to continue into 2016.  

The record high reinsurance capital and stable to weak growth in reinsurance demand has driven, and will continue to drive, softening in the global reinsurance market for medical professional liability. The competitive market environment is expected to continue into 2016, driven primarily by surplus capacity, with pricing stable to slightly decreased in most venues. 

Management Risk

Directors & Officers Liability 

Premium/Capacity Overview

The D&O marketplace was very competitive through the end of 2015 with prices declining or coming in flat across most industry segments. Despite a few industry consolidations, there was still an abundance of capacity, resulting in premium decreases. Excess layer pricing and rates continued to fall due to historic increased competition levels between carriers willing to come in well below what used to be the typical excess rate of 65%-70% of underlying. Primary carriers, which are fewer in number, still tried to maintain rates where possible, particularly for companies with financial issues, large growth in exposure and high merger and acquisition activity; however, competition made it difficult. Retentions (SIRs) were stable with exception to companies that experienced significant growth in market cap or were highly acquisitive. 

Primary program pricing was flat to 5% down with larger programs with multiple layers seeing decreases of up to 10-15% overall.  

D&O Trends and Litigation Trends 

In the last half of 2015, there were a few significant developments:

  • In September, the Department of Justice published the “Sally Yates’ Memorandum” stating that the department will “fully leverage its resources to identify culpable individuals at all levels in corporate cases.” The memorandum set out a six-step plan to assist the DOJ in pursuing individuals in corporate wrongdoings. This is worth watching to see how it may impact conduct language in the policy and program limits.
  • There continues to be an increase in class actions overseas. Clients with international exposure should evaluate their exposure in those jurisdictions that do not recognize their U.S.-placed policies to avoid coverage gaps/fines and penalties.
  • Buyers benefitted from increased competition around coverage terms. New endorsements were offered by various markets in an effort to differentiate themselves from other carriers including Books and Record Costs Coverage and Class Certification Event Study Costs coverage subject to no retentions.


Employment Practices Liability  

Premium/Capacity Overview

Employment Practices Liability (EPL) capacity continued to be abundant and pricing remains relatively flat as we move in to the first quarter 2016, barring increases in exposure or claim experience. Market response to exposure in California continued, as it leads the country in the number of employment claims filed. Accordingly, despite the competitive marketplace, most California insureds experienced increases in both price and retentions.

EPL Trends

EEOC activity remained high. With its fiscal year ending September 30, 2015, the EEOC announced an uptick in discrimination charges, yet an overall decrease in total charges filed since 2013.  The EEOC continued to concentrate on systemic investigations with an overall increase in these in 2015.

An increase in joint employer liability related claims could have an impact on those companies that have not had day-to-day control over employee relationships and employment practices franchisees or vendors.

Wage and Hour litigation continued to be the primary concern for most of our clients and will continue to be a major issue for many corporations heading into 2016.  AIG released its new Wage and Hour product in the fall of 2015 offering limits of up to $25MM excess of minimum retentions of $5MM. Otherwise, there continued to be minimal coverage available for this exposure with some carriers offering low sub-limits for defense costs and a limited marketplace in Bermuda and London.

Fiduciary Liability 

Premium Overview

The Fiduciary Liability market remained stable throughout 2015. Premiums were relatively flat with some decreases achieved with competitive options. Fiduciary capacity continued to be plentiful as well. Carriers continued to address exposures with tag-along risk (plans that invest in company stock), ESOPs, third party fees and funding issues.

Fiduciary Trends

ERISA class action settlements in 2014 reached a high of over $1.3 billion. Some updates on matters that we have been keeping an eye on include:

The U.S. Supreme Court is expected to issue its decision in Spokeo, Inc. v. Robins this year.  The case arises under the Fair Credit Reporting Act and at issue is whether Congress may allow lawsuits for a statutory violation where such violation did not result in injury. The outcome of the case could have a dramatic impact on the number of lawsuits alleging ERISA violations.  For example, commentators project that if the Supreme Court finds that a private plaintiff must allege actual injury or harm in order to sue for a statutory violation, it will result in a decrease in private ERISA litigation.   

A new Department of Labor rule, anticipated early this year, may expand the definition of “fiduciary” to go beyond who we have historically considered to be a fiduciary to include more individuals than before, increasing those potentially implicated in a fiduciary liability matter.


The Commercial Crime market remained stable through the end of 2015 with pricing remaining relatively flat on renewals with incumbent carriers. Where accounts were actively marketed and when clients were willing to switch carriers, premium decreases were often obtained. 

Social Engineering/Fraud was the hot topic in the Crime marketplace for 2015, providing coverage for loss resulting from a situation where someone represents themselves as a vendor/client/executive and fraudulently convinces an employee to forward funds/payment of some kind. This coverage was offered with sub-limits only at this time and most often required a separate application. An additional premium was often imposed, particularly when limits were in excess of $100,000. Insureds should carefully look at policy wording to ensure that the coverage being offered is meaningful.

Network Security and Privacy (Cyber Liability) 

Premium/Capacity Overview

Our most active and volatile area of management liability continued to be the Network Security and Privacy marketplace. Security breaches dominated the headlines daily including announcements of intrusions at Excellus Blue Cross Blue Shield, United Airlines, and Ashley Madison.

The market remained hard as carriers continued to price on a reactive basis to high profile and high severity breaches.  Insureds saw premium increases across the board, particularly those in the healthcare, retail, and financial institutions space.  Some insureds saw premium increases as high as 300%, as well as increases in retentions.  Many carriers reduced capacity and pulled out of the market for certain industry segments completely.   Carriers were selective, making sure to underwrite risks thoroughly in an effort to completely understand the exposure.  

Capacity continued to be prevalent as new carriers entered the marketplace in the U.S., as well as in London and Bermuda. Middle market size clients, outside of the riskier industry classes, continued to find available capacity and relatively competitive pricing. The main area of differentiation amongst carriers remained in the pre-breach and post-breach services. In the pre-breach arena, AIG continued to add to their host of services including a service that will provide monitoring of the dark web to track what threats are planned against an insured. Beazley launched a proprietary website for its insureds that provides information on compliance, training, risk reduction, and news updates. Other carriers increasingly provided robust pre-breach solutions that included contract reviews, tabletop exercises, and regulatory compliance, amongst other services.  

Cyber Trends

Globally, there is increased attention on cybersecurity but legislation in many countries lags behind the U.S. Policies are increasingly being purchased, but with a strong focus on the business interruption element as there is, in most countries, no obligation to report breaches. As cyber breaches and cyberterrorism are free from geographical boundaries, it is almost certain that countries will be required to work together to counteract nefarious hackers. It is believed by many that the future of global warfare will be cyber based, which will create new disputes unseen in previous conflicts. It is truly a global concern with no physical or geographical boundaries and will continue to be for many years to come.


Marine Cargo & Stock Throughput 

Premium Overview

Coverages Rate change Q3 2015 Rate change Q4 2015*
Marine Cargo   Flat to slight increase  Flat to slight increase
Marine Hull & Liability Flat to slight decrease  Flat to slight decrease 

*Based upon renewal with incumbent market. Greater rate decreases and broader coverage terms may be achieved with a marketing effort.

Marine Cargo & Stock Throughput

Pricing Overview

Underwriting results continued to be favorable for marine cargo accounts without storage risks throughout 2015. Rate reductions were the norm for accounts with three year loss ratios under 60%. Even accounts with unfavorable loss experience were often able to leverage market competitiveness to generally maintain flat rate renewals with incumbent markets.

The results and rating methodology for stock throughput accounts varied by underwriter. While the marine cargo market continued to handle many global storage risks, especially those with catastrophe exposures, property insurers were increasingly competitive on pricing for static risks as 2015 progressed. This competition between marine and property markets resulted in savings of 5-25% for insureds.

Capacity Overview

With mergers between XL and Catlin, and Ace and Chubb, 2015 was marked by consolidation in the marketplace. Profitable combined ratios and new players (Munich Re, Swiss Re and Berkshire Hathaway Specialty Insurance) seeking to gain market share with competitive pricing and insuring conditions kept the marine cargo marketplace soft.  

Insurers could build upwards of $100MM / $500MM in capacity for a single insured’s transit and storage exposures, respectively. Most domestic U.S. insurers provided at least $20MM in transit capacity and $10MM in CAT storage capacity. To accommodate higher limits, quota share and layered structures with multiple insurers was commonplace in the U.S. and London.

Coverage Overview

Coverage terms were extremely broad in 2015 with most, if not all, markets agreeing to broker manuscript “all risks” policy forms. Some markets were reluctant to include voyage frustration coverage, likely due in part to the press surrounding the threatened strikes at the port of Long Beach in California earlier in the year.

Profit sharing was available for most accounts when marketed, generally with a maximum of 25-30% of annual premium eligible to be returned following a loss-free year.


With an abundance of capacity across the entire Property and Casualty marketplace, we fully expect the soft market trend to continue for near future, barring excessive CAT losses, which could lead to rate increases for accounts with storage risk.

Marine Hull & Liability 

Pricing Overview

The marine hull & liability insurance market remained flush with capital and continued excess capacity in 2015. Due to the depressed interest rate environment, there was a drive for “loss free” premium income. This resulted in accounts with clean loss records that demonstrated safety programs to be highly sought after and they experienced favorable renewals. 

Many insureds exhibited improved risks with newer fleets, improved loss records and safer operations, opening the possibility for favorable renewal terms. Insureds with large or significant claims may have experienced premium increases, but market forces and an oversupply of capacity mitigated higher premiums.

The dramatic decrease in oil prices throughout 2015 caused many clients’ revenues to drop accordingly. Policies rated off revenues saw a corresponding decrease in overall premium as a result.

Insureds with long-term insurer relationships were generally successful in obtaining rate reductions. Further, the same markets wishing to grow premium income (partially to offset the reductions on their renewal book) aggressively sought to win new business.

Capacity Overview

An increased supply and decreased demand for reinsurance kept prices down. 

Coverage Overview

Coverage conditions for Marine Hull and Marine Liability remained mostly unchanged except for Loss of Hire coverage, which is largely unavailable in the U.S. market. 


Our forecast for the near future is a continued soft market with rate reductions continuing on loss-free accounts. Accounts with losses will see nominal rate increases, but such rate increases will be tempered by the oversupply of capacity. Coverage conditions will remain unchanged and no less broad than they are at present.  


Premium Overview

Coverages Rate change Q3 2015 Rate Change Q4 2015
All Risk Property Flat to 15% decrease Flat to 15% decrease

Hurricane season ended quietly doing nothing to dampen the softness of the overall property market. Several significant flood and tornado events at year end resulted in pockets of losses without much of an impact to the overall marketplace. Many insureds continued to enjoy substantial rate decreases on renewals, and those who had losses were mostly able to maintain their competitive account rates or experienced only minimal increases. Markets continued to offer multi-year deals to secure business in the dynamic marketplace. Additionally, shared and layered programs continued to be oversubscribed, as markets sought to assert and differentiate themselves by providing additional capacity in hopes of securing the program lead (along with additional premium). 

Early feedback on 1/1 treaty renewals indicate that pricing continued to soften, albeit at a slower pace than has been seen earlier this year. Many insurers were able to utilize the competitive market to enhance their coverage, increase limits and/or lower deductibles.

Coverage Overview

Retail markets unable to retain incumbent accounts offset losses by writing new business on previously rejected accounts. Excess and surplus markets continued to get squeezed out of shared/layered programs. As a result, they are becoming increasingly creative as they seek ways to hold onto market share. Multi-family frame habitational occupancies, however, continued to remain a challenge in the market.

Stand-alone Terrorism continued to offer an attractive alternative to TRIPRA as capacity grew, pricing was competitive, and available coverage was broader than the federally subsidized option. Multi-year deals continued into third quarter and multi-year, single aggregate limit (also known as MSL) products are being promoted by several large carriers (ACE and Berkshire Hathaway).

With ongoing softened market conditions, natural catastrophe deductibles and sublimit enhancements have continued for good accounts. 

Capacity Overview

Ample capacity in the property insurance space continued into the fourth quarter. Given the low interest rate environment, insurance companies continued to produce steady returns for investors on a moderate to low risk basis. At this stage, many believe it would take multiple large-scale catastrophic events to reverse the downward trajectory of the market. 

The mega merger of ACE and Chubb officially closed on January 14, 2016. Many questions still remain as to how this will affect current as well as future insurance capabilities. On the Excess and Surplus, ACE Westchester announced that because of the restructure it will be closing direct retail access for larger brokerage firms and will continue placing business through wholesalers.

In other insurer news:

  • Zurich Global Corporate in North America has decided to cease writing monoline Equipment Breakdown coverage and has executed a letter of intent to transition the coverage over to Hartford Steam Boiler.  
  • Arrowhead Group, a major player in the Excess/DIC marketplace, announced its launch of a new $100-125MM All Risk Arrowhead facility. The facility began accepting submissions on January 11, 2016.  


Unless something dramatic alters the current interest rate environment and the industry sustains several large catastrophic events, we fully expect the property market to remain competitive for the foreseeable future. Capacity should remain plentiful, as insurers seek to expand their offerings to gain as many streams of revenue as possible in the soft market. New business goals will continue to be set; insureds that are considering a change with carriers will most likely have a favorable outcome at renewal, either with incumbents or new partner(s).


Premium Overview

Coverages Rate change Q3 2015 Rate change Q4 2015
Contract Surety Flat to slight decrease  Flat to slight decrease
Commercial Surety Flat to slight decrease  Flat to slight decrease

Conditions in the surety marketplace during 2015 were reflective of those noted at year end 2014, namely: the surety industry experienced year over year growth of 4.66% to $5.5 billion in written premium. The direct loss ratio moderated to 14.99% from 16.26% in 2013. 

Important trends in 2015 included:

  • Several companies increased capacity during 2015 and look to expand their writings significantly in 2016.  
  • Reinsurance continuing as a buyers’ market with approximately 30 active players.  
  • Competition in certain market sectors created continued pressure on rates.
  • Coal, oil and gas risks continued to encounter a very difficult market.

Contract Surety

Contract surety volume continued to be spotty in most of the country, with the exception of California, Florida, and Texas. Overall volume was impacted severely by the expanded use of Zurich’s Subguard™ product (default insurance) and the slowdown in smaller private commercial work in many markets.

  • Healthcare, Education and P-3 type infrastructure continued to be strong markets for construction companies.
  • The Contract Surety space saw increased use of collateral arrangements and funds control to enhance the credit capacity of small and medium sized contractors. 

Commercial Surety

  • The commercial surety sector continued to show solid premium growth.
  • The replacement of bank letters of credit with surety bonds for certain obligations gained momentum in 2014 and continued into 2015.
  • Rate competition continued to be fierce for investment grade credits.
  • New entrants and plentiful reinsurance continued to put rate and underwriting pressure on all commercial surety players.
  • There was an increase in the use of surety bonds in place of bank letters of credit in the EU last year, unlike previous years, wherein bank letters of credit were used almost exclusively.


The surety industry will face some major challenges in 2016. Rate and underwriting pressure will likely be the norm barring a major catastrophic economic event within the industry. The energy industry, a heavy user of surety credit, is particularly challenged as the prices of coal, oil, and natural gas have plunged. 

The surety industry, as a whole, is positioned to meet underwriting losses due to strong balance sheets and spread of risk via multi company participation, and the judicious use of reinsurance. 

We continue to believe that there will be increased merger and acquisition activity in the surety space in 2016. 

Transportation & Logistics

U.S. Customs Bonds/Miscellaneous Surety Bonds

Logistics Liability (Errors & Omissions, Third Party Liability, Contingent Cargo or Cargo Liability) for domestic and international freight intermediaries

Coverage Overview

U.S. Customs / Miscellaneous Surety Bonds

Significant factors affecting these product lines include:  

  • ACE (Automated Commercial Environment) and eBond – last year, U.S. Customs released “eBond,” a new environment that allows new Continuous Import Bonds (C1s) to be filed the same day an application is sent to U.S. Customs, as opposed to the previous waiting period of roughly five business days. As a result, there were a greater number of C1s filed with Customs in 2015. Eventually all customs entries will have the option of being filed electronically, which should allow agents to underwrite these risks more diligently and in real time with exchange of information between Customs and the surety / surety agent, prior to the entry taking place.
  • Change in Bond Guidelines– CBP is drafting new bond guidelines as eBond becomes more prevalent and the bond liability determination gets centralized away from ports of entry.  Priority Trade Issues (PTIs) represent high-risk areas that can cause harm to the U.S. economy. The new bond guidelines may place greater emphasis on importers of textiles and apparel, requiring larger bonds from importers of goods that CBP believes to be within the scope of a Priority Trade Issue.
  • Goods Subject to Anti-Dumping Duties and/or Countervailing Duties (AD/CVD) – The U.S. has seen an increased number of goods subject to AD/CVD in 2015, including but not limited to solar panels, certain passenger vehicles, and light truck tires from China. Goods entered into the U.S. that are subject to Antidumping Duties and/or Countervailing Duties typically do not liquidate for up to six years and the duty rate at liquidation may end up higher than the duty that was paid at the time of entry. The surety bond guarantees the payment of duty to CBP, and we expect continued collateral requirements for most importers bringing in merchandise that falls within the scope of Anti-Dumping regulation.

Logistics Liability

Throughout the global supply chain, the demand for goods and services continues to increase and freight intermediaries played a more pivotal role. With this increased role came greater exposure for freight intermediaries and demand for flexible insurance programs. Logistics Liability insurance is designed to provide coverage to freight intermediaries for cargo damage, negligence, third party death, bodily injury and property damage claims.

Premium and Capacity Overview

For Freight Forwarders and Non-Vessel Operating Common Carriers (NVOCC), Logistics Liability policies are generally underwritten based on the number of Twenty-Foot Equivalent Units (TEUs) shipped or by a client’s Gross Revenue. The nation’s major container ports handled an increase in the number of TEUs in 2015 over the previous year.

During the year as a whole, and especially in the final quarter, the transportation insurance marketplace remained highly competitive, which kept rates and premiums for Logistics Liability policies relatively stable. Renewal premiums also remained steady during the same period. With increased competition, insurance markets looked for new ways to separate themselves from their competitors. Markets have expanded their product offerings and capacity increased throughout much of 2015, leveling off towards the end of the year.


U.S. Customs Bonds rates should also remain flat throughout the beginning of 2016, with an increased focus on underwriting and collateral requirements. 

Lower insurance premiums for Logistics Liability policies, the availability of broad coverage options, and increased capacity continued at the end of 2015 and into the beginning of 2016. In this relatively soft marketplace, strong competition will force insurers to keep rates and premiums stable during the first quarter of 2016.  

We expect rates for Customs Surety and Ocean Transportation Intermediaries (OTIs) to remain flat in the first quarter of 2016 as well as the foreseeable future. 

A growing demand for cyber liability insurance appears to be driven by clients who must often act as freight intermediaries, accepting funds on behalf of their clients to pay duties and freight charges. There is a significant risk associated with these activities.