E&S Market Lines Expand, Outperform Broader P/C in 2022

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The U.S. excess and surplus (E&S) lines market had a good year in 2022, growing to account for nearly 9% of the U.S. property/casualty (P/C) insurance industry.

E&S direct written premiums (DWP) increased for the twelfth consecutive year and reported double-digit growth for the fifth straight year, reaching $91 billion in 2022, according to a Fitch Ratings report, U.S. Excess and Surplus Lines Market Review.

For the first time since 2015, E&S reported better underwriting results than the broader P/C industry and is expected to remain profitable in 2023, performing better than the standard P/C market for the near term.

“Expectations for the E&S market include a second consecutive year of direct underwriting profits in light of high demand and a continued favorable pricing environment,” said Douglas Pawlowski, senior director at Fitch Ratings. “Nearly all lines are reporting double-digit growth in direct written premiums from a combination of higher prices and greater policy volume.”

As recently as five years ago, E&S consistently represented 5% of the total P/C market. Major writers of homeowners insurance from the admitted market left volatile states such as Florida and California, boosting E&S numbers. The E&S market offered more rate and form flexibility to continue coverage for these higher-risk areas.

For this report, a U.S. E&S market participant is defined as any company with at least $200 million in total DWP and at least half of that premium generated in states where the insurer is not licensed to write business. The report includes a review of DWP growth and underwriting performance of the top 25 domestic E&S writers, plus the largest writer, Lloyd’s of London, which, in aggregate, generated greater than three-quarters of all industry 2022 DWP. Evaluating E&S premiums and losses by business line, company or industry aggregate is only available on a direct basis, which does not include all costs or net effects of reinsurance.

Customers requiring coverage structured in a specific way for unique risks find greater flexibility to tailor policy rates in the E&S market, which has fewer regulatory constraints. A potential downside for policyholders in the non-admitted market is the lack of access to state guarantee funds should an underwriter encounter financial difficulty, said Fitch.

All major E&S lines of business reported substantial growth from period to period. The total E&S premium grew by 20% in 2022, slightly above the five-year CAGR and considerably above the 10% increase for the entire P/C industry.

As a result, E&S reported a combined ratio of 96 for 2022, improving from break-even results in 2021. Both property and casualty lines had underwriting profits in 2022, reversing a two-year trend of elevated property losses.

Continued underwriting profitability is expected over the near term as a hard pricing environment outweighs inflationary pushback. The P/C insurance industry remains well-capitalized, which provides a cushion against potential volatility.

Topics Excess Surplus Property Casualty

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