AM Best has revised its market outlook for the delegated underwriting authority enterprise (DUAE) segment to stable from positive, driven by moderating growth and emerging headwinds.
In a recent report, AM Best said it expects the segment’s core growth drivers—strong capacity, diverse capital sources, growing niche expertise, and continued investment in talent and technology—to persist, though with a more moderate impact amid selective capacity, tighter economics at renewals, and heightened oversight.
The DUAE model enables carriers to access niche markets without full exposure to volatility, and its specialised expertise aligns with rising demand for specialty products. DUAEs have increasingly operated in non-traditional markets through partnerships with fronting and hybrid fronting companies, as well as startup specialty commercial carriers. With E&S market growth moderating and capacity becoming more selective, conditions support continued participation by DUAEs, though expansion is expected to be more measured.
Edin Imsirovic, director, AM Best, said, “The segment’s strengthening ties to the E&S and fronting segments is a double-edged sword. As DUAEs become major players in these markets, which receive significant capacity support from reinsurers, they face a greater dependence on reinsurance.
“Reinsurance capacity constraints can negatively affect the DUAE market in the form of capacity tightening, compressed commission income and narrowing underwriting margins, as well as weakened bottom-line performance.”
AM Best also noted that capacity from the Lloyd’s market—the largest provider for DUAE business, particularly in the United States—has fluctuated in recent years as the market increases oversight of its delegated providers.
The rating agency emphasised that internal governance and controls as part of risk management are essential to keep pace with the segment’s rapid growth. Private equity funding of DUAEs also requires proper due diligence on sources of capital.
Moreover, the DUAE segment faces less data transparency than the traditional market. Exercising prudence amid rapid growth can allow individual players to balance expansion with stability of revenue, profitability, partnerships and talent retention, while enhancing efficiency in the insurance marketplace.
“Carriers and DUAEs continue to add programs, but the current level of capacity is likely to push rates down and make performance a more important differentiator,” added Imsirovic. “Given the balance of opportunities and emerging headwinds, the stable outlook appropriately reflects current risk‑reward conditions in the DUAE market.”
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