AM Best adjusts US excess and surplus lines segment outlook to stable

Credit rating agency AM Best has updated its outlook for the US excess and surplus (E&S) lines insurance market from positive to stable, reflecting slower premium growth and the beginning of rate softening.

The agency reported that rate increases are easing in certain classes and that uncertainties in loss costs, including social inflation and the volatility of natural catastrophes, require careful attention. Despite these factors, underwriting and operational profitability remain strong.

New entrants are still being drawn to the market, but capacity is increasingly selective, with stricter terms and conditions and higher performance expectations at policy renewals.

“Although favourable 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.

AM Best emphasised that the rise of complex technologies across industries is likely to sustain demand for tailored surplus lines coverage. The agency noted that tightening underwriting standards by admitted carriers are encouraging more accounts to seek protection in the E&S segment. Lines increasingly entering this market include commercial auto, directors’ and officers’ liability, cyber liability and risks linked to the growing legal cannabis sector.

According to AM Best, the market is being shaped by rising costs for rebuilding and repairs after weather-related catastrophes, as well as supply chain delays, which have shifted more homeowners’ insurance into the surplus lines sector. The agency also highlighted that delegated underwriting authority enterprises, including managing general agents, are supporting structured E&S carriers by developing customised coverage solutions.

The ratings agency also noted that global reinsurance markets, including the London market, continue to play a key role in the E&S segment. At the same time, collateral requirements and oversight for fronted programmes are becoming more stringent, while reporting and data expectations, particularly at Lloyd’s and across the United Kingdom, are increasing, creating additional operational complexities. The agency concluded that while growth may be more measured, overall conditions remain supportive for US E&S lines carriers.