Rising Premiums, Increased Exposures Should Benefit E&S Insurers

US excess and surplus (E&S) lines insurers are poised to see improved performance in 2021 after a difficult 2020, according to Fitch Ratings.

Fitch said that US property and casualty (P&C) insurers specializing in the E&S market are seeing better growth and profit opportunities as premiums increase in many segments. Growth did not produce profitability in 2020, however, as E&S materially underperformed the broader P&C industry with a 107 percent combined ratio for the year, the rating agency said.

In particular, the E&S market experienced substantial natural catastrophe and pandemic-related incurred losses, Fitch said, and lacked the benefit of favorable standard lines personal auto results.

"Excess and surplus business interruption and contingent business interruption losses from pandemic-related events were likely due to broader coverage terms and fewer instances of virus exclusions," Fitch Ratings Senior Director Douglas Pawlowski said in a statement.

The E&S market reported double-digit growth in direct written premiums for the third consecutive year in 2020, Fitch said. The rating agency expects the trend to continue this year as rates and exposure showed strong growth during the first half of 2021. The combination of admitted insurers shedding unprofitable and more volatile business along with premium increases drove near-term revenue growth in nearly all E&S P&C product segments, according to Fitch.

"Continued material rate increases and tighter underwriting conditions will move direct underwriting results towards break-even or better levels with headwinds linked to pandemic-related losses greatly reduced," Mr. Pawlowski said.