US surplus lines market surpasses $100bn premium threshold in 2023, AM Best

According to credit rating agency AM Best, the US surplus lines market surpassed the $100 billion threshold for the first time in 2023 for direct premiums written (DPW), reaching a record figure of $115.6 billion.

In a new report, the agency states that the surplus lines market has enjoyed a surge resulting in yearly double-digit DPW growth since 2018, with abundant submission flow from distribution partners fueling growth.

Another notable factor that’s driven this growth has been market dislocation on the property side, which reflects the challenges presented by increased climate risks and more-volatile weather patterns that have led to higher insured loss totals.

As a result, these factors, combined with the impact of inflation on repairs of damaged property, has led more admitted carriers to re-asses their risk appetites for certain risks, and has expanded opportunities for non-admitted insurers, particularly those in states and areas subject to repeated extreme weather events, AM Best explained.

Meanwhile, pricing for most commercial lines of coverage has seen a notable rise throughout the last three years, nd consequently, surplus lines insurers have used their greater familiarity with tougher commercial risks to take on more of these exposures.

In 2023, surplus lines DPW as a percentage of the property & casualty (P&C) industry’s commercial lines DPW increased again, ending 2023 at 23.8%.

David Blades, associate director, Industry Research and Analytics, AM Best, commented: “The surplus lines market’s resilience has been marked by insurers’ ability to withstand tumultuous times by adjusting strategies, innovating solutions and modifying enterprise risk management principles.

“These strengths are embodied by the development of practices that have led to short-term improvements during tough times, while also setting the stage for long-term success.”

AM Best’s report showed that the Lloyd’s market generated the largest premium increase in 2023, with the 86 syndicates that wrote US surplus lines business in 2023 increasing the Lloyd’s market’s premium total by a staggering 28.8%.

Additionally, the agency’s composite of domestic professional surplus lines companies (or those writing more than 50% of their direct business on a surplus lines basis), also maintained market momentum, improving its combined ratio to 90.0 for 2023, more than 11 percentage points lower than the P&C industry’s combined ratio of 101.5.

“New distribution platforms, along with geographic or product line diversification, continue to play a meaningful role in leading surplus lines groups’ ability to defend their market positions. In addition, new distribution partnerships, including instances in which insurers delegate authority to managing general agents or other delegated underwriting authority enterprises or DUAEs have helped fuel the growth of newer surplus lines entities,” added Blades.

Another recent AM Best report showed that the US P&C industry recorded a $3.8 billion net underwriting gain in the first six months of 2024, a major improvement from the $24 billion loss reported in the previous year.

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