According to a new report by Fitch Ratings, property & casualty insurers that specialise in the E&S market are seeing better growth and profit opportunities as premium rates rise in many segments.
However, it is likely that market performance in 2020 will remain subpar due largely to absorption of losses from the coronavirus pandemic.
U.S. P&C insurers have booked substantial insured losses related to the pandemic in 1H 2020 with a still uncertain outlook for ultimate losses.
The E&S market accounts for nearly 6% of the U.S. P&C insurance industry, and while a number of companies in Fitch’s U.S. P&C universe have significant operations in E&S lines, no rated issuer is exclusively an E&S writer.
P&C carriers on the whole performed well under Fitch’s coronavirus stress analysis, due to low asset leverage and lower non-coronavirus claims from reduced economic activity and stay-at-home orders.
The E&S market experienced an estimated 16% increase in direct premiums in 2019, but still underperformed the broader P&C industry for the fourth consecutive year with a 100% direct statutory combined ratio.
Barring severe catastrophe losses, the market was poised for a return to better direct profits in 2020 with demand spurred by admitted markets shedding risk, accelerating premium rates in multiple segments and tighter underwriting terms. Losses from the onset of the coronavirus pandemic in 2020 are likely to forestall this advance.
The total E&S market, excluding Lloyd’s, increased DWP by a robust 16% to $41 billion in 2019, relative to fairly normal 5% growth for the P/C industry. The proportion between casualty and property DWP remained constant at approximately two-thirds to one-third, respectively.
The non-admitted industry is anticipated to report similarly strong growth in 2020. Continued outsized growth in E&S was driven by high catastrophe/weather losses, loss-cost inflation, reduced capacity in the standard market, low interest rates and general uncertainty due to the pandemic.
DWP for 1H20 was up 14%, on par with 1H19. Growth was reported across all major product lines in 1H20, with the exception of commercial auto due to pandemic- related exposure reductions that started in 2Q20.
Senior Director Douglas Pawlowski commented: “A second year of significant rate increases and tighter underwriting will promote a return to stronger results for the E&S market, although incurred losses related to the coronavirus pandemic will affect profitability into 2021. E&S policies in products like business interruption, and contingent business interruption will more likely generate losses from pandemic related events due to broader coverage terms and fewer instances of virus exclusions.”
