US Excess and Surplus Market Poised for Profitable Underwriting Year

Strong demand and a continued favorable pricing environment are expected to produce a second consecutive year of direct underwriting profit for the US excess and surplus (E&S) insurance market, according to Fitch Ratings.

The rating agency reported that nearly all E&S lines are reporting double-digit growth in direct written premiums from the combination of higher prices and greater policy volume.

Fitch said that recent growth in excess and surplus insurers' underwriting profits is the result of admitted insurers shedding business that falls outside of their risk appetites to the E&S market, Fitch said. Fitch cited the example of homeowners business in catastrophe-prone states such as California and Florida.

Direct statutory premiums written in the E&S market reached $91 billion in 2022, Fitch said, a figure that represents nearly 9 percent of the total property-casualty insurance industry premium. Excess and surplus has historically accounted for approximately 5 percent of total property-casualty premium before the market’s growth gained speed in 2018, according to Fitch.

Fitch said that roughly two-thirds of E&S premiums are for casualty coverages and one-third for property.

"Non-admitted casualty exposure includes general liability as well as professional liability exposures for more difficult risk classes," Fitch said. "Further, the non-admitted casualty exposure has very little workers compensation business, which is the largest casualty line in the admitted space."

E&S underwriting performance improved in 2022 improved with a direct combined ratio of approximately 96 percent, Fitch said, after posting essentially break-even results in 2021. It was the first time the excess and surplus markets reported better underwriting results than the overall property-casualty industry since 2015, the rating agency said.

"The overall E&S market is expected to generate an underwriting profit in 2023 and 2024 as hard pricing in most product segments is keeping pace with loss costs," Fitch said.