E&S market outlook upgraded to stable: A.M. Best
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A.M. Best Co. has revised its outlook for the excess and surplus lines market to stable from negative, citing the sector’s economic ingenuity and its ability to establish clearly defined coverage exclusions.
The Oldwick, New Jersey-based rating agency said in its market segment outlook report Thursday that while surplus lines insurers are not immune to the worldwide declines in economic activity, the pandemic has had a “subdued impact” on the sector.
“Economic ingenuity has minimized the decline in demand for customized coverage for new, unique, high, capacity, or distressed risks,” the report said.
It said surplus lines insurers “have generated consistent underwriting cash flow, experienced stability in claims activity, and successfully managed the challenges of investment market conditions,” which “have moderated concerns about the cohesion of the surplus lines market.”
E&S insurers’ ability to establish clearly defined coverage exclusions “has provided a layer of insulation for surplus lines markets, though the depth of this protection faces the same coverage creep threats as the overall insurance industry,” the report said.
“Adequate rate-setting ability under the rate freedoms provided by the surplus lines markets provides a pricing advantage, as the premium volume reported through surplus lines stamping offices across the country shows,” it said.
It predicts capacity in the segment will remain stable “and could even expand in the short term.”
The Wholesale & Specialty Insurance Association said last month that surplus lines premiums reported to U.S. surplus lines stamping and services offices increased 14.9% to $41.7 billion in 2020, despite a 1.3% decline in transactions to 4.9 million.
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