16th September 2018

Fitch report says modest recovery set to continue for the US excess and surplus (E&S) lines market
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Modest recovery is set to continue for the US excess and surplus (E&S) lines insurance market, which will provide a boost for US property & casualty insurance companies that have significant operations in this specialty segment, according to Fitch Ratings in a new report.
Typically more volatile than standard admitted insurance markets, the E&S business vastly underperformed P/C insurers overall last year with a 116 direct statutory combined ratio, significantly higher than the five-year average of 95. The E&S industry also absorbed a substantial hit with large net natural catastrophe insured losses, which eclipsed $50bn for all US insurers in 2017.
Signs of a rebound emerged for E&S' market premium base, which grew by 5% last year due largely to fast-growing commercial auto lines. Premium volume is likely to accelerate this year from premium rate increases in both property and auto lines along with some 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 director Gerry Glombicki.
Based on mid-year performance and favourable premium trends, the E&S market is poised to generate a significant direct underwriting profit in 2018, barring another round of large catastrophe losses. Substantial losses may emerge from the landfall of Hurricane Florence in the Carolinas, "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 unfavourable shifts that may influence future profit potential," said Glombicki.
Another area worth keeping an eye on in the coming months for the E&S segment will be industry consolidation. This comes off of several notable E&S mergers and acquisitions last year, most notably Markel Corporation's acquisition of State National Companies. '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 favourable profit margins ,' said Glombicki.
Fitch's "U.S. Excess and Surplus Lines Market Review" is available at ' www.fitchratings.com'

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