2020: Surplus Lines Insurance - A Booming U.S. Market
The surplus lines market is booming in the United States. The current growth spurt in the U.S. E&S market began in 2018, gained steam in 2019, and is poised to continue in 2020. This study includes analysis of the U.S. E&S market and conditions shaping its performance. It examines the drivers of the growing E&S U.S. market, including factors such as distribution, technology, and M&A, along with a review of E&S insurer peer group comparisons, and assessments of the different successful strategies employed by E&S writers. Additionally, the strategic study provides for a primer on the E&S market, E&S premium by state, and Conning’s Surplus Lines index. The study draws upon statutory data, company disclosures, as well as in-depth interviews with leaders at E&S insurers and wholesale brokers.
1. Introduction
2. Executive Summary
3. E&S Market Overview
² The Surplus Lines Insurer Landscape
² Surplus Lines Insurance Performance
² Accelerating E&S Premium Growth in 2019
² New Kids on the Block
² Middle-Aged Parents with New E&S Babies
4. A Hard Market?
² E&S Market Counter-Cyclicality
² Recent Hard Markets
² Drivers of Property Rate Trends
² Retrocessional Capacity
² Drivers of Liability Rate Trends
² Social Inflation
5. The Return of Underwriting
² Tightening Terms and Conditions
² Responses in the Property Market
² Responses in the Liability Market
6. External Factors—Distribution, M&A, and Technology
² Distribution
² M&A
² Technology, InsurTech
7. E&S Insurer Peer Comparison
² Quadrant I E&S Insurers
² Quadrant II E&S Insurers
² Quadrant III E&S Insurers
² Quadrant IV—High Combined Ratio, Low Growth
8. How to Succeed in E&S
² The Cherry Picker
² The Overlooked Business Line
² The Classic E&S Insurer
² New Opportunities for the Niche Dweller
² The Innovator
² The Ultra-Specialist
² Good Times for E&S
Appendix
A. E&S Primer
B. Surplus Lines Premium by State, 2018
C Conning Surplus Lines Index
D. List of Alien Insurers
Introduction
The surplus lines market is booming in the United States. Premium growth at E&S (excess and surplus) lines insurers began to accelerate in 2018, gained steam in 2019, and is on course to continue into 2020. Wholesalers feeding the E&S market are dealing with significantly increased submission flow. New insurers with near-perfect timing have been launched to take advantage of the resurgence in surplus lines business. Legacy E&S insurers are opening their intake valves. Insurers poised to take advantage of today’s buoyant surplus lines market will benefit from these conditions.
In the aftermath of a tepid rate response to heavy natural catastrophe losses in 2017 and 2018 and troubling loss trends in casualty lines, market-firming finally took hold in 2019. Rate increases in most commercial lines rose from 2% and 3% in early 2019 to closer to 10% by mid-2019. Adverse loss trends in property and liability lines also drove standard admitted insurers to take measures beyond just raising rates. Insurers embarked on corrective underwriting programs, tightened terms and conditions, and restricted capacity.
The combination of firming insurance rates and an outflow of business from admitted insurers into nonadmitted insurers is driving today’s E&S premium growth. The commercial lines rate-firming that began in 2018 and picked up in 2019 is the strongest since the hard market of 2002-2003. The movement of business from admitted to nonadmitted insurers is typical of the “tidal” flow accompanying firming or hard markets, when admitted insurers shed business more appropriately suited for surplus lines insurers. What opportunities does the current boom in surplus lines insurance create? This study explores the composition of the E&S market and opportunities and strategies to capitalize on the market’s current direction.
This study includes analysis of the U.S. E&S market and conditions shaping its performance. It draws on statutory data, company disclosures, as well as in-depth interviews with leaders at E&S insurers and wholesale brokers.