AM Best Upgrades E&S Outlook; Praises Resiliency, Clear Terms Amid Pandemic

February 19, 2021

A.M. Best revised its outlook for U.S. E&S to Stable from Negative.

“Despite the widespread impact of COVID-19 on the U.S. economy, and uncertainty as to how long the pandemic will last, the E&S segment’s ongoing profitability and premium growth signal opportunities for surplus lines carriers to successfully operate,” A.M. Best said in its latest market segment outlook for the sector.

What has kept the E&S market from more serious problems during the pandemic? A.M. Best credits “economic ingenuity” for helping to keep any demand declines to a minimum “for customized coverage for new, unique, high capacity or distressed risks.”

The ratings agency credits businesses with pivoting quickly during the pandemic, implementing strategies to remain open and still serve their customers. By doing so, demand for insurance capacity remained steady, but there was also “new business formation” during the last year, A.M. Best said.

“Surplus lines carriers have generated consistent underwriting cash flow, experienced stability in claims activity, and successfully managed the challenges of investment market conditions,” A.M. Best said. “These factors have moderated concerns about the cohesion of the surplus lines market.”

Bespoke and Clear Pandemic Terms

Additionally, A.M. Best credited the sector’s success to its clear coverage terms for pandemics.

“The ability to structure bespoke terms and conditions favors clearly defined coverage exclusions while being a layer of protection against claims under pandemic conditions,” A.M. Best asserted. “This quality has provided a layer of insulation for surplus lines market, though the depth of this protection faces the same coverage creep threats as the overall insurance industry.”

Source: A.M. Best

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