US surplus lines market posted "record-high" direct premiums written in 2021

“Despite these challenges, the P/C industry has been able to limit underwriting losses and generate surplus growth,” the report said. “In particular, non-admitted or surplus lines companies have been able to generate net underwriting and operating gains.”

AM Best observed that surplus lines insurers have been “especially critical to the market,” since they provide solutions for unique exposures with higher risk profiles. And in this post-pandemic phase, these insurers “have been even more important” thanks to technological advancements, the credit rating agency added.

The consolidation of specialty insurance market distributors – which include wholesale insurance brokers and managing general agents (MGA) – continues to reshape the insurance market, AM Best said in its report. Mergers and acquisitions have helped new entities offer a wider range of products and services, enabling them to better position themselves to handle the transformation in retail agents’ buying trends, it was noted. The acquisition of smaller brokers and intermediaries has also helped expand the operations of large wholesale brokers.

“AM Best believes competitive market conditions will continue to lead to strategic acquisitions of both specialty niche insurers and insurers with a well-established market presence or advanced technological capabilities,” the report said.

Other key takeaways of the report include:

In aggregate, surplus lines insurers reported vastly improved underwriting and operating results in 2021.
Surplus lines coverage solutions have grown to become even more in demand, particularly to cover higher hazard, evolving risks such as cyber liability, specific professional liability classes, energy, and environmental liability, as well as property risks in wildfire-vulnerable areas.
There is a dearth of surplus lines impairments – there has been only one since the beginning of 2004 – which further highlights the resilience of the surplus lines and specialty market companies.

“Overall, AM Best expects surplus lines insurers will continue to benefit from underwriting results, organic capital generation, and intelligent management of balance sheet factors, as they have throughout the pandemic,” the report concluded.