Total U.S. surplus lines direct premiums written (DPW) marked a double-digit growth rate increase for the fifth consecutive year, climbing by 19.2% to reach a record $98.5 billion in 2022, according to a new AM Best report.
The Best’s Market Segment Report, titled, “Surplus Lines Insurers Focus on Evolving Risks to Sustain Premium Growth,” states that the U.S. surplus lines insurers have continued to generate net underwriting and operating profits in each of the past five years. AM Best expects the favorable underwriting results to continue for this segment, along with organic capital growth. While the surge in surplus lines DPW growth reached a high of 25% in 2021, that pace moderated to 19.2% last year.
This comes as the overall market for property risks—both personal lines property (homeowners) and commercial property—remains challenging, especially for accounts that have suffered large or multiple weather-related catastrophe losses, property risks, and an increase in claims totals due to elevated construction costs. These conditions have enabled surplus lines writers to carve out a bigger portion of total property/casualty (P/C) industry premium, which increased to an all-time high 11.2% in 2022, up from 10.4% a year earlier.
“The contraction in overall capacity owing to tighter admitted company risk appetites creates an environment that plays to the strength of surplus lines insurers with some of their creative market and product-oriented solutions,” said David Blades, Associate Director, AM Best. “These skills are especially valued.”
According to AM Best data generated for the report, eight of the top 10 lines of the segment’s coverage grew their DPW by more than 10% in 2022, led by the commercial property, commercial auto, and general liability lines, with the latter including boosts the from umbrella and excess liability, cyber, and professional liability segments.
Pricing pressures have continued for many commercial lines of coverage in the past two years, with both non-admitted and admitted companies focusing on core business and culling what they considered underpriced, borderline surplus lines accounts from their portfolios. These factors help drive the surplus lines share of P/C commercial DPW above 20% for the first time in 2021, ending 2022 at 21.6%.
“In our view, the excess and surplus lines segment should continue reporting favorable underwriting results and organic capital generation,” said Robert Raber, director, AM Best. “Volatility in the investment markets could constrain overall operating earnings, but excess and surplus lines insurers typically fare well during cycles when market conditions stress standard market insurers.”
New distribution platforms and geographic or product line diversification also have played an integral role in allowing the leading surplus lines groups to defend their market positions. Some of the new distribution partnerships, including ones delegating authority to managing general agents or similar delegated underwriting authority enterprises (DUAEs), have helped fuel the growth of newer surplus lines entities as well.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=335589.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Associate Director, Industry
Research and Analytics
+1 908 882 1659
+1 908 882 2261
Associate Director, Public Relations
+1 908 882 2310
Senior Public Relations Specialist
+1 908 882 2318