U.S Property & Casualty (P&C) insurers with significant operations in Excess and Surplus (E&S) lines are set to receive a boost as the U.S E&S market continues its modest recovery, according to a recent report by Fitch Ratings.
The E&S business is typically more volatile than standard admitted insurance markets and vastly underperformed P&C insurers overall last year, with its 116% direct statutory combined ratio significantly higher than the five-year average of 95%.
However, the sector began to rebound last year after its market premium base grew by 5%, largely due to fast-growing commercial auto lines, with premium volume likely to accelerate this year from premium rate increases in both property and auto lines and some casualty segments.
“The strength of the economy overall will also serve to fuel growth for several E&S-related products, including property and construction,” said Gerry Glombicki, Director at Fitch Ratings.
Fitch added that, absent further large catastrophe losses in 2018, the E&S market is poised to generate a significant direct underwriting profit this year.
“Besides uncertainty tied to catastrophe losses, loss costs in areas like automobile bodily injury severity, medical costs and litigation settlement trends, warrant close watch for unfavorable shifts that may influence future profit potential,” Glombicki continued.
Glombicki also noted that the E&S segment had seen several notable merger & acquisitions last year, including Markel Corporation’s acquisition of State National Companies.
“The E&S market has become an increasingly viable M&A target in the last two years and more transactions are likely going forward, for candidates with unique specialty product niches and favorable profit margins,” he explained.