AM Best Maintains Positive Outlook for Delegated Underwriting Authority Segment

AM Best has reaffirmed its positive market segment outlook for delegated underwriting authority enterprises (DUAEs), highlighting sustained growth and niche expertise as key drivers. However, potential risks from capacity challenges and rapid expansion remain.

The DUAE distribution model continues to expand its global market share, supported by robust premium growth. According to the Best's Market Segment Report, Market Segment Outlook: Delegated Underwriting Authority Enterprises, the segment has benefited from material growth in the excess and surplus (E&S) market. Elevated catastrophe activity and regulatory dynamics are channeling more premiums into surplus lines.

"The general optimism among insurers and reinsurers about DUAEs persists, with more strategic partnerships being formed between carriers and DUAEs," said Yizhou Hong, senior financial analyst at AM Best. "These partnerships are generally longer-term and allow capacity support across lines of business, industries, and geographies, instead of simply by program."

DUAEs niche expertise aligns with rising industry demand for specialty products while investments in technology and talent continue to bolster growth. However, the segment's growing ties to E&S and fronting markets introduce vulnerabilities, particularly related to reinsurance reliance.

Reinsurance capacity constraints could lead to tighter capacity, reduced commission income, and narrowing underwriting margins, potentially weakening overall performance. The segment also faces heightened risks tied to reinsurer credit and concentration exposure.

AM Best's report underscores the importance of robust internal governance and controls to manage risks as the DUAE segment grows.

DUAEs are third parties contracted by (re)insurers to handle underwriting, claims, and administrative functions. These entities include managing general agents, coverholders, program administrators, and similar roles.

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