Ratings agency AM Best maintains a positive market segment outlook for the delegated underwriting authority enterprise (DUAE) segment, driven by sustained growth and niche expertise, despite potential challenges arising from capacity issues and rapid expansion.
The DUAE distribution channel continues to increase its market share, supported by strong and consistent premium growth globally.
According to Best’s Market Segment Report, the capacity for the DUAE segment has benefited from ongoing material growth in the excess and surplus (E&S) market, as elevated catastrophe activity and the regulatory environment continue to direct more premiums into surplus line businesses.
The DUAE segment’s niche expertise aligns with the insurance industry’s growing demand for specialty products, while investments in technology and talent are noted as key growth drivers.
However, AM Best cautions that the segment’s strengthening ties to E&S and fronting sectors could potentially lead to greater dependence on reinsurers and reinsurance.
AM Best also warned that reinsurance capacity constraints can negatively affect the DUAE market, resulting in tighter capacity, compressed commission income, narrower underwriting margins, and weakened bottom-line performance. Additionally, DUAEs could be exposed to more reinsurer credit risk and concentration risk.
The report also highlights the need for internal governance and controls as part of risk management, given the rapid growth of the DUAE segment.
Yizhou Hong, Senior Financial Analyst, AM Best, commented, “The general optimism among insurers and reinsurers about DUAEs persists, with more strategic partnerships being formed between carriers and DUAEs.
“These partnerships are generally longer-term and allow capacity support across lines of business, industries, and geographies, instead of simply by programme.”
AM Best defines a DUAE as a third party appointed by a re/insurer through contractual agreements, to perform underwriting, claims handling, and other administrative functions on behalf of its partners.
DUAEs comprise entities such as managing general agents, coverholders, programme administrators, programme underwriters, underwriting agencies, and appointed representatives.
