"Underwhelming underwriting results have accelerated premium rate increases, particularly in the commercial property and auto segments," said Doug Pawlowski, Senior Director, Insurance. "The specialized nature of E&S attracts more challenging property and liability business, which generates more volatile loss experience over time. In the last two years, unusual catastrophe losses took their toll on market results."
The E&S market reported a 107% direct statutory combined ratio, significantly higher than the 92% ratio average over the prior five years. Catastrophe losses from Hurricanes Michael and Florence, as well as the California wildfires contributed to this result, despite being lower than 2017 losses from Hurricanes Harvey, Irma and Maria.
Fitch anticipates that further premium rate hardening and movement of underwriting exposures toward non-admitted markets will support above average E&S market premium growth in the near term. Efforts to improve profits by leading E&S market participants, including Lloyds and American International Group, Inc., via changes in policy limits and risk appetite are also significantly affecting underwriting conditions.
M&A activity is having less influence on market share shifts in the E&S market. Transactions that included significant E&S business in 2018 and 2019 were AIG's acquisition of Validus Holdings and Hartford Financial Services Group purchase of The Navigators Group.
From an organic growth standpoint, Berkshire Hathaway Inc.'s (BRK) expansion continues to stand out. BRK is now the fourth largest E&S writer, with market leading five-year average direct premium growth of 31%.
The full report, "U.S. Excess and Surplus Lines Market Review - Consecutive Weak Results Spurs Stronger Revenue Growth," is available at www.fitchratings.com.