Direct written premiums in the US excess and surplus (E&S) lines market grew at a rate of 15% during the first half of 2019, a rate nearly double the overall property and casualty (P&C) market’s growth, according to analysts at Fitch Ratings.
This compares with 2018, when premium growth of 11% marked the biggest rate increase since 2012.
“Underwhelming underwriting results have accelerated premium rate increases, particularly in the commercial property and auto segments,” said Doug Pawlowski, Senior Director, Insurance.
“The specialized nature of E&S attracts more challenging property and liability business, which generates more volatile loss experience over time,” he explained. “In the last two years, unusual catastrophe losses took their toll on market results.”
The E&S market reported a 107% direct statutory combined ratio, according to Fitch, which was significantly higher than the 92% ratio average over the prior five years.
Catastrophe losses from Hurricanes Michael and Florence, as well as the California wildfires, contributed to this result, despite being lower than 2017 losses from Hurricanes Harvey, Irma and Maria.
Fitch anticipates that further premium rate hardening and movement of underwriting exposures toward non-admitted markets will support above average E&S market premium growth in the near term.
Additionally, efforts to improve profits by larger market participants, such as Lloyd’s and AIG, via changes in policy limits and risk appetite are also significantly affecting underwriting conditions.
On the other hand, analysts see M&A as having less influence on market share shifts in the E&S market.
From an organic growth standpoint, Berkshire Hathaway’s expansion continues to stand out, Fitch said. The company is now the fourth largest E&S writer with five-year average direct premium growth of 31%.
