AM Best is expecting that surplus lines market conditions will remain tight for the remainder of 2021 and into 2022 due to the ongoing impact of COVID-19, which, combined with outsized property catastrophe losses, has provided an opportunity for the sector to demonstrate its resilience.
Although the surplus lines segment fared as well, if not better, than the broader property and casualty (P&C) industry in a number of ways, analysts note that the skills that these insurers relied on to face the challenges of 2020 are needed again in 2021.
Heading into 2022, AM Best notes that a decline in capacity owing to changes in company risk appetites, along with hardening rates for many commercial lines of coverage, has created an acute need for creative market and product-oriented solutions.
The rating agency observed that demand for surplus lines insurance expertise did not wane despite substantial numbers of business closures and job losses through the pandemic crisis.
The modernization of the engineering, manufacturing, and construction businesses, along with advancements in warehousing and logistics, in the past few years has resulted in an increase in unique exposures with higher risk profiles, meaning market capacity for surplus lines risks has been high.
Some opportunities have also come from the growth in borderline surplus lines risk exposures from which standard market companies have backed away or offered significantly different renewal terms for price, coverage, or both.
“The surplus lines market traditionally performs well during times of tumult and uncertainty,” AM Best commented.
“The growing complexity of risks sparked by new technologies in a host of industries and the outflow of more-complex specialty accounts from admitted insurer portfolios has helped drive surplus lines premium growth. As a result, business more suited for surplus lines insurance products transitions back from the standard market, underscoring the counter-cyclical nature of the surplus lines market.”
In 2020, the surplus lines market grew by 17.5%, driven by the US surplus lines insurers, with the surplus lines-focused companies generating 20% growth.
Regulated non-Lloyd’s insurers also helped propel surplus lines market premium, although Lloyd’s syndicates, which account for almost 20% of surplus lines annual premium, grew by only 2.8%.