While US-exposed business can look attractive to Asian carriers, managing the volatility around the long-term results and the ability to model those losses are crucial, say BHSI’s Marc Breuil and Marcus Portbury.
Long-tail claims from exposures to the US are a key risk for carriers in the region. With the rise of Asia as the largest exporter of products into the US its exposure to product liability claims in the US is growing.
Any company that operates assets – commercial or industrial – in the US exposes itself to bodily injury and property damage claims and to costs of litigation that are probably the most expensive in the world.
The US is the largest capital market in the world and companies raising capital in the US will also expose themselves to US securities claims and class actions, where not only verdicts can be very unpredictable but also the cost of litigation can be excessively high.
“In the US, there is a frequency of severity,” said Marc Breuil, regional president, Asia Middle East, Berkshire Hathaway Specialty Insurance (BHSI).
“You have a large increase in the number of very intense, severe claims with a large unpredictability when it comes to the outcome of the claims in the context of a very litigious environment where the cost of defending those claims is going to be very high.
“The cost of litigation is increased by additional factors such as plaintiff attorney involvement and litigation funding, which result in an increase in both indemnity and the cost of defence,” he said.
For Asia-based carriers, monitoring and managing these exposures effectively depends on their risk appetite and expertise, Breuil added.
“US-exposed business can look attractive to Asian carriers because it could carry rates that can be up to 10 times higher, or sometimes more, than local exposures,” according to Breuil.
“So you will attract carriers to this segment, but you can be certain of two things: one, there will be volatility around the long-term results of your portfolio that is US-exposed, and two, there will be uncertainty around the ability to model those losses,” he said.
Climbing claims
There is clearly an increasing trend in casualty claims from the US.
Marcus Portbury, head of third-party lines, Asia, BHSI, said: “If we think about the uptick, we’re largely seeing it across casualty and executive and professional lines portfolios.
“In casualty, we are seeing it in the export product liability market and we’re seeing it in our global umbrella liability placements, particularly in terms of explosions and pollution incidents that are increasing in frequency and severity.
In addition, in the umbrellas, we’re seeing an uptick in US motor liability because the primary limits within those umbrella placements are being squeezed down. The latest thing we’re starting to see is PFAS claims coming into the Asian market largely because of firefighting foam,” he said.
“Across executive and professional lines, the uptick is in US publicly listed D&O and more particularly entity securities (side C) placements,”
The US Department of Labor released a study talking about nuclear verdicts, which said that two-thirds of those come from bodily injury and wrongful death.
Around export product liability or product liability in general, the report said that over the last decade, losses have increased by 50% and they hit a median of US$36 million in 2022.
“It is really quite a difficult space to do business,” Portbury noted.
Asian appetite
Breuil said: “In my view, the idea that an Asia-based carrier can come in and out-select the market by picking certain risks and not others is likely to end up in suboptimal output because of the volatility and the uncertainty that reigns over those types of exposure in the US.”
The questions insurers should ask themselves are do you have the ability, the knowledge and the expertise to be underwriting US exposure such as D&O, products liability or umbrellas that cover the market? Do you have specialised underwriters who have the experience that is required to be able to fully understand those exposures? Do you have people who can help you handle claims in such complex legal environments?
“In the absence of the right expertise, one of the strategies is avoidance,” said Breuil. However, if you want to be involved, “the best strategy is probably what I would call capacity management,” he said.
“That’s a standard we see developing with respect to the US more and more, making sure your previous US$25-30 million lines are U$5-10 million lines. Just managing attachment points will not be enough because of the severity nature of those losses. You need to be managing your capacity and your limit deployment,” he added.
“You need to pick your lane, and make sure you stay within your risk appetite and decide whether you want to bring that volatility into your current portfolio, according to Breuil.
“The underwriting business is not the same as say manufacturing,” said Portbury.
“With that in mind, growth for the sake of growth, or growth for bragging rights is generally going to end in a great deal of trouble and highly likely to end in the erosion of capital.”
If, however, the growth is associated with a narrative around entering a new geography or a new distribution source, pursuing growth may make sense, “but I think without that accompanying narrative you’re writing the same business with inadequate rates or price and that will end up in a very difficult situation in the longer term,” he said.
By contrast, when the market allows you to write a profit in terms of the premium you can secure at terms and conditions that you believe are profitable, that’s the right time to grow, said Portbury. But sometimes the market simply doesn’t allow the right price and terms and conditions outcome to grow sustainably, which Portbury says is the current state of the US-exposed market.
“Where a growth environment is challenged, businesses need to be looking at their operating expenses and at the commissions that they’re paying because generally those metrics in a reducing premium or rate environment are under pressure to go the other way. That’s a very short street that ends in a very bad place,” Portbury added.
BHSI, while an early-stage company “has been trying to develop and build sustainable portfolios around the world for 11 years,” said Breuil.
“We are present in 18 countries and jurisdictions, 43 offices. Our focus is on organic growth and it’s a long-term focus. We’re going to be continuing to build our portfolio underwriting portfolio with a focus on underwriting profitability for the very long term,” he added.
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Marc Breuil
Head of Asia Middle East, Berkshire Hathaway Specialty Insurance |
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Marcus Portbury
Head of Third Party Lines – Asia, Berkshire Hathaway Specialty Insurance |
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