AM Best is revising its market segment outlook on the U.S. excess and surplus (E&S) lines segment to stable from positive, reflecting moderating premium growth and rate softening.

According to the Best’s Market Segment Report, “Market Segment Outlook: U.S. Excess & Surplus Lines Insurance,” rate momentum is easing in select classes and loss cost uncertainty (e.g., social inflation and catastrophe-based volatility) warrants caution, despite continued underwriting and operating profitability. While market conditions support the entrance of new participants, capacity is becoming increasingly more selective on terms and conditions and is raising performance thresholds at renewals.

“Although favorable market conditions for E&S writers persist, early rate softening in select classes such as commercial property, slowing premium growth and more-selective capacity deployment are dynamics that now warrant a stable outlook,” said Edin Imsirovic, director, AM Best.

The report notes that the integration of new, complex technologies in numerous industries makes it likely that specifically tailored surplus lines coverage solutions will remain in high demand. Admitted carriers continue to tighten their underwriting criteria, leading accounts to seek coverage in the E&S market. Lines finding their way to the E&S segment on a more frequent basis include commercial auto, directors’ and officers’ liability, cyber liability and risks from the expanding legal cannabis industry. The continued increased volatility of weather-related catastrophes coupled with the higher cost of raw materials to repair or rebuild homes and supply chain slowdowns also has driven more homeowners’ business to the surplus lines market.

At the same time, the desire of delegated underwriting authority enterprises (DUAEs) such as managing general agents to work with carriers to develop customized coverage solutions is also providing a boost for E&S structured carriers. The global reinsurance market, including the London market, is a major participant in the E&S segment as well.

However, according to the report, collateral requirements and oversight for fronted programs are tightening, and data and reporting expectations, particularly at Lloyd’s and in the United Kingdom, are rising, adding operational complexity. AM Best believes that given the overall dynamics of the insurance industry the tailwind conditions for U.S. E&S lines carriers will remain in place, albeit in a more measured form.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=360098.

To view all Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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