U.S. surplus lines companies reported vastly improved underwriting and operating results, as well as their largest year-over-year premium growth since 2003, according to Best's Market Segment Report, "Record-High Direct Premiums Written for the U.S. Surplus Lines Segment in 2021."
From the first quarter of 2020 to the middle of 2022, U.S. property/casualty (P/C) companies and their distribution partners faced a slew of challenges, including the far-reaching effects of a pandemic, a supply chain crisis, and rising inflation, while suffering above-average losses from natural disasters and significant investment market volatility. As a result, loss costs continue to rise, and price adequacy is still a major issue for several lines of coverage.
Despite these obstacles, the property and casualty industry has been able to limit underwriting losses and generate surplus growth. Non-admitted or surplus lines companies, in particular, have been able to generate net underwriting and operating gains. Surplus lines insurers' market share of total P/C DPW has more than doubled over the last 20 years, rising from 4.3% in 2001 to 10.1% at the end of 2021. The surplus lines insurers' share of commercial lines DPW increased from 8.3% at the end of 2001 to 20.4% at the end of 2021, demonstrating the segment's resilience in seemingly adverse market conditions.
AM Best anticipates that surplus lines insurers will continue to benefit from underwriting results, organic capital generation, and prudent balance-sheet management, as they have throughout the pandemic. However, volatility in the investment markets may limit overall operating earnings.
Overall, AM Best believes that the surplus lines market's critical role and value to the P/C insurance marketplace will continue to grow, given the market's proven ability to effectively assess new exposures and its flexibility to tailor terms and limits to meet coverage demands.