The surplus lines market nearly doubled its pace of premium growth in 2018, according to AM Best, with momentum supported by a healthy US economy and new investments in operating platforms.
Analysts noted that the specialty insurance segment grew by 11.2% last years, notably up from an increase of just under 6% in 2017.
While the segment’s premium has now grown for seven consecutive years, catastrophe-driven losses and market competition have resulted in an overall underwriting loss for the third year in a row.
However, investment return helped the surplus lines segment’s pre-tax and net income grow significantly in 2018, following three years of profit declines.
The pricing environment for the segment has been influenced by a number of factors recently, as companies look to assess each line of coverage they write for current profit potential and future viability, AM Best said.
“Average rates have been rising for most commercial lines of coverage, as nonadmitted and admitted insurers focus on generating more favorable underwriting results despite competition from standard market companies for borderline surplus lines accounts,” said David Blades, associate director.
Additionally, a larger amount of high-quality, data-driven information for different lines of coverage has helped the property/casualty market react more quickly than in the past, when softer pricing periods have been followed by short spike of hard market conditions.
AM Best also reported that mergers and acquisition opportunities for carriers and insurance intermediaries remain plentiful, particularly on the distribution side.
Specialty and surplus lines insurers remain primary targets because the can provide new growth opportunities, market expertise, diversification, and favourable loss experience, analysts explained.
“Effective assimilation of acquired entities is still a challenge for acquiring companies,” said Robert Raber, associate director. “Operational, cultural and other differences can be impediments to the success of combined entities as projected in pre-deal analyses.”
