E&S lines see growth amid admitted market exit or pullback: Triple-I

Excess and Surplus lines (E&S) have experienced remarkable growth for five straight years by double-digit percentage rates, mainly due to admitted markets pulling back or exiting markets, according to a recent Triple-I report.

Analysts noted that solid underwriting results continue to drive operating profitability due to emerging new risks and declining capacity in admitted markets.

“By meeting the insurance needs of risks with lower claim frequency and higher claim severity, the E&S lines have seen significant growth, though the trend of expansion appears to be slowing down a bit,” said Dale Porfilio, Triple-I’s chief insurance officer.

Much of E&S growth can be seen in lines such as liability, fire, earthquake, flood, and ocean marine insurance. Since 2018, the E&S share of total property lines direct premiums written has grown the most in three markets facing risk crises: Florida, California and Louisiana.

As projected by analysts in 2020, the E&S market was anticipated to witness consistent growth. Estimates suggested that total premiums could potentially reach a remarkable $125.9 billion by 2027, at a 15.2% compound annual growth rate.

The sustainability of the E&S market’s top-line growth is dependent upon multiple factors, one of which is the presence of flexible regulations.

Given the substantial political shifts observed in 85 of the 99 state legislative chambers in the U.S., the E&S market may be susceptible to regulatory alterations, potentially impacting its growth trajectory, analysts explain.

Massive court verdicts can also bring opportunities or challenges for E&S. Since the pandemic, the largest verdict amounts have climbed from $1.1 billion in 2020 to $7.3 billion in 2022, according to the most recent figures.

“As cases from the early pandemic years make their way through the court system, admitted and E&S insurers may struggle with risk prediction and mitigation,” said Porfilio. “On the other hand, the increasingly volatile litigation environment could be driving growth in the E&S umbrella and excess casualty lines.”

While reinsurance outcomes might influence the situation, capital positions remain strong. Due to an increase in ceded losses and disciplined choices by reinsurers, analysts have observed that reinsurance has entered a prolonged challenging market for property catastrophe rates, specifically for excess of loss.

Nevertheless, that market is driven by loss cost inflation, catastrophes, and investment market volatility and gains. If reinsurance becomes more expensive or harder to get, E&S insurers may be forced to increase prices, Triple-I noted.

Analysts concluded: “While analysts expect these dynamic (and, in some cases, volatile) market conditions to continue for the foreseeable future, other factors that may drive outcomes for the sector include talent, economic inflation and supply chain issues.

“Ultimately, prospects for E&S hinge upon its capacity to support innovation in risk management, providing creative and customised solutions that aren’t accessible on the admitted market – whether that involves finding new ways to price and underwrite long-standing risks or providing coverage for new risks.”

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