Surplus lines see record-setting premium growth in 2021
U.S. surplus line segment has sustained double-digit premium growth over the past four years, AM Best reports.
In 2021, direct premiums written in U.S. surplus lines grew 25% year-on-year to reach a record $82 billion, according to AM Best, which noted the “exceptional” gains came on the back of improved underwriting and operating results despite a year of challenges.
More importantly, the surplus market has sustained double-digit growth during the past four years, according to David Blades, AM Best associate director, industry research & analytics.
“That consistency underlines just how key the overall surplus lines market is to the broader P&C market,” Blades said during a webinar hosted by the Wholesale and Specialty Insurance Association (WSIA). He explained that results through June 2022 are indicating another big year for the segment.
The 2022 mid-year report from the U.S. Surplus Lines Services and Stamping Offices shows the segment’s premiums have already surpassed $31 billion, compared with $24 billion in the same period year prior. The 15 stamping offices have all reported premium increases through 2022’s first half, and Oregon and Pennsylvania are the only states to not see double-digit gains.
All of this growth has allowed the segment to surpass the 10% mark when it comes to total U.S. property & casualty direct premiums written, according to AM Best, which reported this is a first for the market.
What’s behind the growth
Blade explained elevated submissions and retentions, higher hazards and evolving risks such as cyber and environmental liabilities are converging to lift the segment.
Concerning gains in submission volume, Blade said it is partly a function of hardening conditions that have hit certain lines and risk classes that need specialty insurance professionals’ insight to find the right coverages.
“That elevated submission volume that companies are seeing is reflective of more and more of those risk classes and coverages going to the wholesale market, and wholesale is approaching the surplus line market to find solutions for those insureds,” Blade explained.
Further, surplus line insurers have reviewed the books of business they’ve built in the past few years and are feeling comfortable with those risks. In turn, the segment is increasing its retention, which factors into premium growth, according to Blade.
On top of this, the upheaval and economic uncertainty of recent years is causing some players in the admitted market to review their risk appetites and pull back from middle- to high-hazards risks.
While the sector is performing at a record-setting clip, it isn’t without its troubles as the market is currently experiencing a shortage of capacity.
“Everyone knows it. It is no surprise,” said Bryan Clark, president of Gorst & Compass Insurance. “We’ve seen a tremendous pull back of capacity throughout the U.S. and many carriers have significantly reduced their property portfolios in CAT areas. Agents and brokers are scrambling to find more capacity, and you can bet people attending WSIA will be talking to their carriers about more capacity.”
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