The United States excess and surplus market continues to attract capital and capacity, but how that risk is ceded is increasingly shaped by state-level regulation. That has direct implications for Bermuda reinsurers, according to panellists on S&P Global’s recent webinar.

Richmond, Virginia-based Kinsale Insurance was highlighted as a case study. While the company does not disclose full treaty details, Daniel Ferrara, assistant vice-president of Allied Health at Kinsale, said the company cedes “a portion” of its property and casualty portfolio, with an emphasis on excess casualty.

“We cede a portion of a property and casualty risk, mostly excess casualty,” he said. The webinar’s moderator, Chris Winter of S&P, suggested it is about 20 per cent.

As its balance sheet has grown, the company has increased the amount of risk it keeps, but reinsurance is still central to its strategy, said Mr Ferrara.

“We’ve grown a lot as a company over the last several years. So one thing we’ve done is taken more risk in-house, as the balance sheet has expanded. But reinsurance is still a big part of our risk mitigation strategy, and will continue to be for years to come,” he said.

For Bermuda, that 20 per cent looks attractive, but only if cedants can charge adequately for it. Here, the picture becomes more complicated. Jeff Huebner, executive vice-president of commercial insurance at California State Automobile Association, described how state rules differ sharply on catastrophe pricing and reinsurance.

“Some states allow the use of catastrophe models. Other states have regulation that historically say: ‘Hey, you need to look at your historical experience, and that's what you can use to price’,” he said.

He added that while “many states allow carriers to pass on the cost to reinsurance”, others do not, meaning reinsurance “is not necessarily part of the calculation for rate”. That makes it more difficult for carriers to operate in a state, he said, pushing more business into the E&S channel.