Best’s Market Segment Report: Expanding Opportunities Bolster U.S. Surplus Lines’ Growth and Operating Results

OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. surplus lines market experienced double-digit premium growth for a second straight year in 2019, driven by hardening market conditions and the growing complexity of risks sparked by new technologies in different industries, according to a new AM Best report.

The Best’s Market Segment Report, “Expanding Opportunities Bolster Surplus Lines Growth and Operating Results,” notes that this specialty insurance segment grew 11.2% last year, the same growth recorded by the segment in 2018. According to the report, the hardening market conditions had a distinct impact on unique, higher-risk profile accounts, generally requiring specialized or surplus lines treatment. Rate increases for most commercial lines, which constitute the majority of surplus lines business, rose from low single digits (2-3%) in early 2019 to low double digits (10-11%) from the second quarter of 2019 through the end of the year, and has maintained that momentum in 2020.

AM Best’s composite of domestic professional surplus lines insurers—those that write more than 50% of their business on a nonadmitted basis—recorded a combined ratio of 99.4 in 2019, a 5.1-percentage-point improvement over 2018. Additionally, improvement in the composite’s annual loss ratio reflects the positive impact of recent average pricing increases in most lines, along with a more benign catastrophe year in 2019. “The shift of business from admitted to nonadmitted insurers is typical of harder markets, when admitted insurers take a more conservative approach to accounts with higher risk profiles,” said David Blades, associate director, AM Best industry research and analytics. “This results in business flowing to surplus lines insurers, with the opportunity to write at more favorable rates and coverage terms.”

Indications through first-half 2020 are that surplus lines companies have been able to continue growing premium despite the COVID-19 pandemic, the report states. Still, the expected contraction in exposures led to AM Best revising its market segment outlook on the U.S. excess and surplus lines segment to negative in April, and for some carriers, has since created a shrinking underwriting cash flow, shifting claims frequency-severity trends and a challenging investment market. In addition, carriers could be subject to coverage creep, which state legislatures are already attempting to address with regard to business interruption claims.

“The majority of early COVID-19 losses so far are incurred but not reported [IBNR] losses, as opposed to paid or case-incurred losses,” said Robert Raber, associate director. “Although loss frequency for some lines of business such as private passenger auto and commercial auto has declined due to the pandemic, frequency trends are likely to return to prior levels when conditions allow the economy to bounce back to pre-pandemic levels.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=300916.

A video presentation on this market segment report with Blades and Raber is available at http://www.ambest.com/v.asp?v=surpluslines920.

AM Best will be hosting a webinar on the state of the surplus lines market today, Sept. 10, 2020, beginning at 11 a.m. (EDT), with a panel of industry leaders in the U.S. sector who will discuss this report and industry trends. To register, please go to http://www.ambest.com/webinars/surplus.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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