Excess and Surplus Lines See Growth in Recent Years Due to Admitted Markets Pulling Back or Exiting Markets: Triple-I

Media Contact:
Triple-I: Loretta Worters
lorettaw@iii.org

NEW YORK, Sept. 23, 2024 – Excess and surplus lines (E&S) has seen a surge in growth for five consecutive years by double-digit percentage rates. Solid underwriting results continue to drive operating profitability due to emerging new risks and declining capacity in admitted markets, according to the Insurance Information Institute’s (Triple-I) latest issues brief, Excess and Surplus: State of the Risk.

“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.

According to the brief, analysts in 2020 had projected continued growth for the E&S market, with estimates predicting total premiums would reach as high as $125.9 billion by 2027, at a 15.2% compound annual growth rate (CAGR). Whether the E&S market can sustain that level of top-line growth hinges upon several factors including regulation that fosters flexibility. E&S may be sensitive to regulatory changes – a real possibility given significant political changes for 85 of the 99 state legislative chambers in the U.S.

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 (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.”

Reinsurance outcomes may play a role, but capital positions remain strong. Analysts have noted that reinsurance has entered a sustained hard market for property catastrophe rates (particularly excess of loss), a result of both an increase in ceded losses and disciplined decisions by reinsurers. 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.

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 customized 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, Triple-I concluded.