As E&S Market Growth Hits New Heights, Some Risk May Be There to Stay: AM Best
In 2023 the U.S. surplus lines market for the first time surpassed the $100 billion mark in direct premiums written, and some of the risk that has found non-admitted insurers might stay there beyond an eventual turn in the market cycle.
Total premium was about $115.6 billion, up 17.4% compared to 2022, according to a report by AM Best, fueled by submission flow from wholesalers, managing general agents, and program managers. Competitor Fitch Ratings earlier this month said E&S direct written premiums grew 15% last year to increase its share of the total property/casualty market to 9%.
AM Best added in its recent market observations that some of the business that has found a home in the surplus market “may prove to be stickier.” The hard market turn in 2017-18 was driven by the need for underwriting and rate corrections in commercial auto, general liability, products liability, commercial property, and medical professional liability. Catastrophe-exposed property and non-professional liability risks joined the fray to lead the U.S. surplus lines market to its sixth year of double-digit premium growth in a row.
AM Best said it believes “some if not much” of the risk now on non-admitted paper “may remain in the surplus lines market over the long term because of fundamental or structural changes wherein the risk profile of certain types of exposures may lead to them needing to find coverage in the surplus lines market.”
These risks include catastrophe-exposed personal and commercial property as well as a wider variety of general liability risks such as professional liability, product liability, D&O liability, and commercial auto liability—especially trucking.
“Products traditionally written on an admitted basis are providing opportunities for the surplus lines market, such as coastal homeowners coverage, particularly for high-value homes,” AM Best said. “Some market participants have opined that the E&S market could become the standard for certain property owners in California, Florida, and Texas. Additionally, some states have passed legislation allowing certain products to be written on a non-admitted basis that previously were required to be admitted.”
E&S insurers again in 2023 provided the majority of coverage (59.2%) in the U.S. cyber market, expanding market share from 2022’s 57.5%.
Looking at other evolving areas for the surplus market, AM Best pointed to cannabis, artificial intelligence and environmental liability risks.
Outside of California, surplus carriers have “overwhelmingly” provided solutions to the cannabis industry, but as this industry matures with more states legalizing cannabis in some way, “the associated commercial insurance options in the admitted market will likely grow as well,” AM Best said.
Liability exposures associated with AI and environmental—especially PFAS—while not completely clear, may prompt companies to turn to surplus lines insurers for coverage.