The E&S pull

After a number of start-ups and scale-ups were unveiled in 2020, Upland Capital Group has emerged as the first of a potential Class of 2021 to target the fast-hardening US excess and surplus lines (E&S) market as investors and industry figures continue to be drawn to the sector.

In recent months sources had suggested a number of smaller ventures were waiting in the wings to specifically focus on the E&S market, in addition to the new capital that has entered or is lined up to enter from larger Bermudian and London start-ups and scale-ups, as well as several MGA players.

Upland will initially focus on excess casualty business – one of the hardest areas of the E&S market where capacity is at its tightest – before building out a broader P&C and specialty insurance portfolio.

The start-up has pedigree both in the form of its chairman, president and CEO Todd Hart’s track record in launching and building businesses, and James Damonte and Mark Morrison’s history at Hallmark.

The US specialty insurer may have been struggling over the last year, but the E&S business that Damonte headed when Morrison was group CEO is seen as sufficiently valuable in the current market environment that it is being considered for a spin-off to unlock value for the group.

Few details are available at this point about Upland’s structure and where it is in the process of establishing a rated and licensed carrier subsidiary to begin building out its underwriting portfolio.

Start-ups, scale-ups and MGAs

Other start-ups yet to secure a shell or other platform through acquisition or self-build are utilising fronting vehicles to access business more quickly.

Of the round of 2020 start-ups and scale-ups, those that have had access to established underwriting company subsidiaries are those that are likely to gain the most immediate traction.

Core Specialty – the rebooted and recapitalised StarStone US – had an existing E&S platform in place and has been able to build from an established underwriting portfolio by adding talent in areas it sees as particularly attractive or by selectively putting its paper behind programs and MGAs.

Skyward Specialty (formerly Houston International Insurance Group) has also been adding teams in new segments of the E&S market after a capital injection and repositioning under new management last year.

Another repurposed carrier likely to have a strong emphasis on the E&S market is ProSight Specialty, following the recapitalisation led by TowerBrook under new CEO Jonathan Ritz that was announced this month.

Meanwhile, Applied Underwriters is one of a number of “hybrid” platforms that is building out underwriting teams to write on its own balance sheet and as MGAs as it diversifies its book with a strong focus on the E&S market.

Vantage – one of the largest pure start-ups of recent times – is building its own platform for US insurance business, while other new capacity is expected to arrive from vehicles such as Mosaic, writing from Bermuda and Lloyd’s.

Other (re)insurance start-ups or scale-ups such as Inigo and ERS are also expected to look to target E&S business directly or indirectly.

And Convex – Stephen Catlin and Paul Brand’s 2019 start-up that has scaled up with further capital raises – is already actively writing US E&S insurance business.

Other routes to the market include a number of start-up MGAs – with some specifically targeting the fast-hardening areas of excess casualty and professional liability.

Stephen Sills’ Bowhead Specialty has a hybrid model, writing on behalf of American Family initially with an MGA structure and a capitalised reinsurer sitting behind the US insurer, with backing from Gallatin Point.

Other new capital targeting the E&S sector includes alternative capital manager Integral ILS, which is targeting property insurance business by providing its capacity across several AmWINS facilities.

And, of course, the burgeoning program sector is continuing to see capital enter in hybrid fronting structures as a conduit for additional reinsurance capacity to access the admitted and non-admitted markets.

Pricing outlook remains strong

Despite the inflow of new capital specifically targeting the E&S market, sources suggest the impact – at least in the near term – on pricing dynamics will be minimal.

Speaking to The Insurer TV earlier this month, AmWINS CEO Scott Purviance said that for true start-ups it will take time to get up and running.

He added that the amount of capital raised is not sufficient to materially change the trajectory of pricing in the short term.

The executive said it is clear that there is a need for additional capacity in the E&S market, but as it is a “return-driven hard market” and not a “supply-driven hard market”, carriers are demanding to get a certain return on their capital and that is driving dynamics.

And he said that there is still plenty of demand from potential capital providers to deploy in the E&S market, if they can find the right management team and a platform, whether in the form of a shell company or an existing business to repurpose.

The opportunity to catch the rising tide of rates in the E&S market may not be long-lived, but there is plenty of evidence that highly attractive pricing conditions will prevail through this year and at least into 2022 – and that means the prospect of other additions to the Class of 2021 is high.