A new report from AM Best highlights that total US surplus lines direct premiums written rose to a record $82 billion-plus in 2021, with the largest year-over-year premium growth since 2003.
This increase comes as AM Best notes that from the first quarter of 2020 , through mid-2022, US P&C companies have been dealing with myriad challenges, as insurers and their distribution partners have been navigating the effects of the pandemic, which includes a supply chain crisis and rising inflation.
As a result, loss costs are continuing to rise and price adequacy also remains a serious concern within the industry.
However, despite these challenges the P&C industry has been able to limit underwriting losses and generate surplus growth.
Surplus lines insurers have been especially critical to the market, as they have been providing solutions for unique exposures with higher risk profiles endemic to manufacturing, engineering, and construction businesses, along with new technological advancements.
At the same time, while businesses in all industries are continuing to adapt to new ways of operating, these insurers have been even more important post-pandemic, due to technological advancements.
Furthermore, AM Best highlights that consolidation of specialty insurance market distributors continues to reshape the market.
M&A has made a major impact as its helped new and surviving entities provide a wider array of products and services, therefore better positioning them to deal with the transformation in retail agents’ buying trends.
In addition, acquisitions of small brokers and intermediaries are expanding the operations of some of the largest wholesale brokers.
AM Best, states that it believes that competitive market conditions will continue to lead to strategic acquisitions of both specialty niche insurers and insurers with a well-established market presence or advanced technological capabilities.
Overall, AM Best noted that it expects surplus lines insurers will continue to benefit from underwriting results, organic capital generation, and intelligent management of balance sheet factors, as they have throughout the pandemic.
However, the rating agency warned that volatility in the investment markets, could constrain overall operating earnings and capital for the surplus lines writers.
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