The U.S. excess and surplus (E&S) lines market continues to offer profitable growth opportunities for insurers and reinsurer
s in the London market – which could help counteract some possible headwinds, according to a report from AM Best.
“Excess and surplus (E&S) lines insurance in the US is a notable contributor to the topline of many London market companies and is e
xpected to continue to provide profitable growth opportunities over the near term,” said the report titled “Market Segment Outlook:
London Market Insurance,” which was published on April 8.
AM Best said the outlook for the U.S. E&S segment remains positiv
e, owing to its “significant growth and efficient capacity deployment against the backdrop of declining capacity of admitted carriers.” (The report explained that Lond
on market re/insurers write business globally, but there is a geographical bias towards North America.)
U.S. admitted carriers are turning away from property lines, which have seen higher loss activity, higher reinsurance costs
and retentions of risk, which are all driving premium dollars into the E&S segment, according to a separate AM Best report, specifically co
vering the US E&S market, which was published on March 28.
“Other lines being cast off by admitted carriers and finding their way t
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o the E&S segment are commercial auto and directors and officers liability. Cyber liability and the expanding legal cannabis industry als
o continue to look to E&S carriers,” said the March report, titled “Market Segment Outlook: US Excess & Surplus Lines Insurance.”
A Conning report, published on Jan. 3, 2025, revealed that the U.S. E&S market experienced unprecedented growth, with a 21% c
mpound annual growth rate over the past five years and surpassing $104 billion in premiums in 2023. Conning said the market continues to ou
tperform the admitted market “by addressing complex, nonstandard risks that tra
ditional insurers often reject.” (The Conning report is titled “E&S Insurance: New Challenges, New Solutions.”)
Despite the growing opportunities available to London market re/insurers from the U.S. E&S market, AM Best pointed to some possible headwinds in the form of rate softening, growing cl
imate risks, and rising social inflation in certain business lines. As a result, the ratings agency has revised the outlook for the London market insurance segment to stable from positive.
Rate Softening
Discussing each of these issues in turn, AM Best noted (in its April 8 report) that the pricing environment in the London market for most business lines remains adequate and supportive of favorable underwriting profits – but there are signs of softening.
London market re/insurers have seen several consecutive years of increasing rates, “which coupled with moderate natural catastrophe experience, translated into the market delivering strong underwriting profitability in both 2023 and 2024,” AM Best said.
While most commercial lines rates appear to be moderating – albeit from a high base, “the pricing environment for most business lines to be conducive to supporting good underwriting profitability in the near term,” the report continued.
As a result, underwriting cycle management will be a key focus of London market participants during 2025 and 2026, “particularly if rates continue to fall over the near term.”
