America’s excess and surplus (E&S) lines insurance market is set to continue its “modest recovery,” Fitch Ratings has revealed in its latest report.
The ratings agency added that the sustained recovery of the E&S market “will provide a boost for US property & casualty (P/C) insurance companies that have significant operations in this specialty segment.”
Last year, the E&S business underperformed P&C insurers with a 116% direct statutory combined ratio – considerably higher than the five-year average of 95%. The E&S segment also took a substantial hit with large net natural catastrophe insured losses – which came in at over $50 billion for all US insurers in 2017.
Also last year, E&S’s market premium base grew by 5% primarily due to fast-growing commercial auto lines, promising a recovery for the market.
Fitch said that the market’s premium volume is likely to accelerate this year from premium rate increases in property and auto lines, as well as several casualty segments.
“The strength of the economy overall will also serve to fuel growth for several E&S-related products, including property and construction,” said Fitch Ratings director Gerry Glombicki.
The E&S market is set to generate considerable direct underwriting profit this year, based on mid-year performance and favorable premium trends. However, the approaching Hurricane Florence could lead to substantial losses for the market.
“Besides uncertainty tied to catastrophe losses, loss costs in areas like automobile bodily injury severity, medical costs and litigation settlement trends, warrant close watch for unfavorable shifts that may influence future profit potential,” Glombicki added.
Fitch also brought attention to an increase in industry consolidation activity in the E&S segment, citing Markel Corporation’s acquisition of State National Companies last year.
“The E&S market has become an increasingly viable M&A target in the last two years and more transactions are likely going forward, for candidates with unique specialty product niches and favorable profit margins,” Glombicki explained.