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AM Best expects surplus line market conditions to remain tense for the remainder of 2021 and into 2022 due to the continued impact of COVID-19, which, combined with disproportionate real estate catastrophic losses, has enabled the sector to demonstrate its resilience. .
While the excess insurance segment is doing as well, if not better, than the general P&C industry in several ways, analysts note that the skills these insurers have relied on to meet the challenges of 2020 are needed again in 2021..
As 2022 approaches, AM Best notes that a decline in capacity due to changes in corporate risk appetite, as well as tightening rates for many commercial hedging lines, has created an acute need for creative market and product driven solutions.
The rating agency observed that demand for excess line insurance expertise has not diminished despite a significant number of business closings and job losses during the pandemic crisis.
Modernization of engineering, manufacturing and construction activities, as well as advances in warehousing and logistics, in recent years have resulted in an increase in single exposures with higher risk profiles, which means that the market capacity for excess line risk has been high.
Some opportunities have also arisen from the growth in risk exposures of overdraft lines against which standard market companies have withdrawn or have offered significantly different renewal terms for price, hedge, or both.
“The surplus line market has traditionally performed well in times of turmoil and uncertainty,” commented AM Best.
“The increasing complexity of risks created by new technologies in a multitude of sectors and the exit of more complex specialist accounts from portfolios of admitted insurers has helped to stimulate the growth of premiums on excess lines. As a result, business more suited to excess line insurance products is withdrawing from the standard market, underscoring the countercyclical nature of the excess line market. “
In 2020, the excess line market grew 17.5%, driven by US excess line insurers, with companies focused on excess lines generating 20% growth.
Regulated insurers other than Lloyd’s have also helped propel premiums in the excess line market, although Lloyd’s syndicates, which account for nearly 20% of annual premiums for excess lines, only increased by 2.8%.
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