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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Joe Tocco came on board at XL Insurance as its new property underwriting head in February because the Exton, Pa.-based insurance arm of Bermuda's XL Capital is looking to grow.

That's where the new XL appetite for property business comes in.

"It's a refocused appetite. You'll see us particularly in North America," Tocco said.

Whereas XL has played "significantly underweight" in the past, plans are now to use its capacity to the fullest.

Two areas in particular are targets for growth. First, XL's Platinum product, which is a 100 percent solution for accounts, with up to $600 million in capacity. Here, Tocco foresees branching out into new occupancies. The other area for growth will come from being more aggressive in large, layered, global accounts, where XL hopes to establish itself as a lead underwriter with the ability to leverage its engineering services.

Hold up, wait a minute, you might be saying to yourself. Isn't the property insurance market a confused mess at the moment? As explained in our cover story in the print July/August issue, "Beware the Spike," many underwriters are seeking rate increases, all the while others are still competing for certain accounts. Some carriers are seeking rate increases on existing books of business yet chasing new business with lower prices. The hard market could be around the corner, or this wild transition stage could last for a few more months ... years. Is this the kind of market you want to expand in?

"We need to be positioned as much more relevant in our space. So when the hard market catches on, we don't miss it," Tocco said, echoing a message you can hear from many underwriting chiefs around the insurance industry these days. "I want to be prepared for when the market does turn ... in all regions, with all producers."

Then he added that, no matter the market conditions, XL needs to start punching at or above its weight class. XL underwriters have proven they can be disciplined, now they can be disciplined while bringing to bear XL's full capacity. This is after XL hit some rough patches following the financial collapse of 2007-2008.

"The group here, we sort of earned the right to grow," Tocco said.

In part, one thing that XL underwriters have done well, according to Tocco, is manage its accumulations. This is important, given the move to the newest hurricane catastrophe model, RMS 11.0, in the coming months. As Tocco explained it, if insurance companies have been managing their accumulations (how much capacity they're writing on a given line in a given region) leaning too heavily on previous models, they could face consequences when RMS 11.0 becomes the standard for all carriers. They could need to reduce accumulations, reduce capacity and/or allocate more capital to their property books to maintain their rating.

"At some point, everyone has to go to confession, right?" Tocco said.

It appears it won't be XL this time.

"We could be on the better side of the equation coming out," he said, intimating that XL uses other techniques beyond models to manage its accumulations.

Still, the new hurricane models emerging from RMS and its competitors AIR and EQE make the current wild, transitioning property insurance market harder for primary carriers to navigate, no matter what. It raises everyone's cost of capital to run their primary business.

"It forces us to try to get more rate in a market environment that's not conducive to do that," Tocco said.

Which brings us back to our original question: Is this the kind of market you'd really want to be expanding into?

August 1, 2011

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