AM Best’s outlook for E&S sector turns positive
The E&S sector is seeing better underwriting results and top-line growth than the overall P&C industry.
Rating agency AM Best has updated its outlook for the U.S. excess & surplus market from stable to positive because of strong underwriting performances in the sector and admitted carriers circling the wagons against certain industries and lines.
The E&S sector has become home to accounts that have been affected by admitted carriers tightening underwriting standards and curtailing coverage in challenging markets, such as Florida and California. With freedom of rate and form, the surplus market is well-suited to take on these accounts as policy conditions and rates can be written to more accurately align with the underlying risk.
AM Best noted commercial auto, D&O, coverage for legal cannabis entities and cyber are prime examples of lines and industries being shunned by admitted carriers that have proven a boon for E&S players.
In addition, the surplus sector is returning better underwriting results and top-line growth than the overall P&C industry. AM Best noted E&S players must deploy advanced underwriting techniques and tools in order to effectively and profitably write the moderate- to high-hazard risks the market tends to cover.
The E&S line structure is also seeing more use, according to Greg Williams, senior director with AM Best, who in a release explained: “Fronting carriers are applying the freedom of rate and form to meet insureds’ coverage needs, and delegated underwriting authority enterprises such as managing general agents are working with carriers to develop customized coverage solutions, all at the same that challenging conditions in the reinsurance market are leading participants to surplus lines underwriters.”
While the outlook is positive, the E&S sector and admitted carriers face many of the same challenges, including general and social inflation and reinsurance capacity issues. However, AM Best did note that these issues do not impact the E&S sector as hard due to its “core competencies of risk selection, price and policy terms.”
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