AM Best has revised its outlook for the US excess and surplus (E&S) lines market segment from negative to stable, due to its ongoing profitability and premium growth.
The rating agency acknowledged that the E&S market still faces uncertainty due to the impact of COVID-19 on the US and global economies, but noted that insurers have fared well so far.
“Economic ingenuity has minimized the decline in demand for customized coverage for new, unique, high capacity, or distressed risks,” AM Best said.
“Businesses pivoted to strategies to remain open and continue servicing their customers, leading to a persistent need for insurance capacity.”
Overall, surplus lines carriers have generated consistent underwriting cash flows amid the crisis, analysts reported, as well as stable claims activity, and prudent management of investment market volatility.
Surplus lines insurers have also been insulated by their ability to structure bespoke terms and conditions that favor clearly defined coverage exclusions, although the depth of this protection faces the same coverage creep threats as the wider re/insurance industry.
Additionally, AM Best believes adequate rate selling ability under the rate freedoms provided by the surplus lines markets provides a pricing advantage, reflected in the premium volume reported through surplus lines stamping offices.
“The ability to align rates charged with insured risks has favored this market since 2019,” analysts said. “Even in the pandemic environment, accounts continue to go to market as both standard and non-standard carriers look to improve underwriting performance.”
Another encouraging trend for the E&S sector is the continued growth in market participants, who show a “healthy interest” in the specialty commercial market, AM Best says.
Potential headwinds for the market include the impact of social inflation on casualty claims, as well as the possibility of a sudden increase in market capacity to disrupt currently favorable market conditions.
