Nationwide bullish on 2022 E&S pricing but considers cutting coastal exposure

Nationwide E&S is bullish on the pricing outlook for 2022 with opportunities for growth almost across the board, although the division of the US insurance giant may look to further cut its coastal catastrophe exposure, president Russ Johnston has told The Insurer.

The pricing environment in 2022 will still be healthy in almost all of the company’s lines of business, Johnston told this publication, with rates in its professional liability, excess casualty, non-cat property and commercial auto offerings, as well as throughout its program business, continuing to exceed loss trends.

“Everybody feels generally the market will continue to go up because we’re still trying to answer the unknowns that are out there,” Johnston said.

While rates have been rising broadly across the industry in recent years, Johnston said in 2022, the price increases will be more specific.

“A year ago, I would say all boats rose at the same rate,” Johnston said, with the exception of workers’ compensation.

“Almost across all classes, rates were up double digit, but 2022 is going to be a bit more nuanced,” he stated.

Among the long tail classes, Johnston said there will continue to be rate rises in casualty and professional liability, but those two sectors “will behave very differently from the cyber market”, Johnston said.

“In 2022, it will be the hardest market for cyber,” the executive noted.

Elsewhere, Johnston said property “will be a mixed bag”.

“Right now, it’s less about rate and more about capacity,” he said.

“In some jurisdictions you could offer a whole bunch of rate and the market is just going to say it doesn’t want it,” the executive stated.

Coastal cut back

Although Johnston said Nationwide E&S anticipates building out its circa $4bn premium portfolio in 2022 in almost every sector, one area where the business does not expect to expand is coastal property.

As Johnston explained, Nationwide E&S has already in recent years de-risked its Florida portfolio by more than 40 percent, and the executive said the company will probably look to “take another turn of the wheel” with a focus on Texas, Louisiana and the rest of the US eastern seaboard.

“We’re looking at places where we need to take some PML off the table because we’re just not getting paid for the risk we’re taking,” Johnston said.

“That’s the one place I’d say we’ll be flat to down depending on where rates are versus growing,” he added.

While Nationwide E&S might be looking to cut back its coastal exposure, the platform is not averse to cat business. As The Insurer reported earlier this month, it has allocated $1bn of capacity to write wildfire coverage in California targeted at the high-net-worth segment.

As this publication revealed, the products will be distributed by a select group of wholesalers including Gorst & Compass, Burns & Wilcox, RT Specialty and Hull & Company.

Another area where Johnston said Nationwide E&S is watching very closely is commercial auto. Rates have risen substantially in recent years because the market has been challenged and there have been issues over frequency of severity.

But as Johnston highlighted, there is mounting concern over the supply and demand for good, experienced, qualified drivers.

“In the middle of Covid, it didn’t matter, [but] it’s going to start to matter,” he said.

“To solve that, does the [commercial auto] industry start to put less experienced drivers on the road at a time when the economy is growing?

“We’ve sort of seen that movie before, and it didn’t end well, and it’s something the industry will be watching very closely,” Johnston said.

Surety, E&O and D&O ripe for growth

Johnston also said Nationwide E&S will continue “to lean into” the surety, directors and officers (D&O), errors and omissions (E&O) sectors in 2022.

In early 2019, Nationwide acquired Flanders, New Jersey-based management and professional lines-focused program manager E-Risk Services. In the time since it was acquired, Johnston said E-Risk has doubled in size.

“I suspect it could double again in the next three years, so we’re very bullish on that side of the ledger,” the executive noted.

Ryan Re “ahead of expectations”

Johnston said the company is also confident of further growth in the Ryan Re business it established in partnership with Ryan Specialty Group in 2018.

“That business has done exceptionally well. [The team is] known in the market, they’ve got strong capital behind them in a market that’s gone through a bit of dislocation, and they’ve well exceeded their plans,” Johnston said of the reinsurance-focused MGU platform that is now led by CEO Emil Issavi.

“It has been well in excess of our expectations, and they’re probably two years ahead of what their original financial plan was. It’s a combination of a strong team, strong capital, and timing. [We] put those three things together, and they’ve just hit a home run.”