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Webinar Panel: Surplus Lines Growth Strengthens as Markets Become More Complex

Total U.S. surplus lines direct premiums written reached a record $82.6 billion in 2021, according to a new Best’s Market Segment Report.
  • David Pilla
  • October 2022

The excess and surplus lines market is seeing extensive growth as traditional carriers seek alternatives in an industry buffeted by rising uncertainty, according to market participants.

There is more opportunity now than ever in the E&S market due to complex risks like pandemic, cyberattack and natural catastrophes, said Lou Levinson, president and chief executive officer, Lexington Insurance Co., during a webinar, “Inside Today's Surplus Lines Market.” It featured a panel of industry leaders in the surplus lines sector of the U.S. insurance market.

Business continues to flow into the segment as the market wrestles with underestimated risk, he said. Surplus lines premiums rose more than 32% in the first half of 2022, fueled by “freedom of rate and freedom of form,” he said.

E&S companies are seeing elevated submission volume, a byproduct of hardening conditions in several lines of business that are necessary to E&S lines, said David Blades, associate director, industry research and analytics, AM Best. He noted more accounts in those moderate-to-higher hazard risk classes that admitted market carriers are stepping away from due to underpricing or unfavorable performance concerns are now being placed via wholesale brokers with E&S companies to find the best coverage solutions for the insured.

As the world sees the rise of complex risks, many admitted carriers have pulled back, offering less capacity at higher prices, said David Obenauer, CEO, CRC Group.

Higher economic stresses caused by COVID-19 and other events make things more stressful for standard-market carriers, causing them to re-evaluate their risk appetites, creating more E&S demand, said Blades.

Much of the rising E&S demand has been driven by domestic professional lines underwriters, companies writing more than 50% of their total premium on a nonadmitted or surplus lines basis, said Blades. Lloyd's underwriters and syndicates have also contributed to the rising demand, although not at the same rate as the domestic professional surplus lines insurers, he said.

Lexington is seeing a lot of “micro hard markets” in every segment due to greater unknowns and volatility, such as public entity, real estate, cyber, long-term care, telemedicine and “anything coastal” including flood and wildfire, said Levinson.

“There are so many unknowns out there” that are driving growth in the E&S market, said Wendy Houser, chief territory officer, West, Markel. She noted underwriters need to focus on rate adequacy given economic inflation.

Total U.S. surplus lines direct premiums written reached a record $82.6 billion in 2021, with momentum continuing through mid-year 2022, according to a new Best's Market Segment Report on surplus lines. It found U.S. surplus lines companies reported vastly improved underwriting and operating results, and notched their largest year-over-year premium growth since 2003.

That record high DPW for E&S included growth of 25% in 2021, said Brady Kelley, executive director, WSIA. Transactions are at record levels in the first half this year, he said.

The E&S market has seen overall growth of 25% in the past year and four straight years of double-digit growth, Blades said. The consistency of that growth is key to the overall market performance, he said. Surplus lines insurers have become more comfortable with their retentions at current levels of profitability, he said.

AM Best expects to see similar results for 2022 based on indications through the first half of 2022, he said.

The past year also marks the first time the E&S market reached 10% of the overall property/casualty market, said Blades. He said that percentage may continue to rise in coming years.

Blades also noted surplus lines premiums for the top 25 players had generally been around 75% of the total market but this past year it had fallen to under 72%, reflecting greater market diversification overall, and the influx of new players in particular.

Back in March of this year, AM Best affirmed its stable outlook for the surplus market reflecting, in part, the ability of surplus lines companies to adjust to changing market conditions in the past few years, said Blades.

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