Fitch: Growing Capacity Limits Upside in U.S. Excess & Surplus Market
CHICAGO -- December 23, 2013
The U.S. excess and surplus (E&S) lines insurance market reversed a four-year
consecutive slide in direct written premiums (DWP) in 2011 and has seen
continued growth through the first nine months of 2013, according to a new
Fitch Ratings report. E&S DWP increased by 9% to $32 billion at year-end 2012
while losses related to Hurricane Sandy led to lower underwriting results.
In a new report, Fitch illustrates how growing capacity limits rate hikes and
promotes persistent competition in E&S lines. Higher premiums were driven by
rising rates in various lines, increased exposure due to a continued, albeit
slow, economic recovery, and a reduced appetite from standard carriers to
write nonstandard risks. However, rate increases slowed in the second and
third quarters of 2013 and the absence of large catastrophe events during the
second half of the year will lead to moderating rates in catastrophe-prone
areas in 2014.
While admitted carriers have pulled back on risk typically covered by the E&S
market, capacity continues to enter the market. Berkshire Hathaway's increased
participation in the E&S market has not significantly altered the market
through third-quarter 2013; however, Fitch expects pricing implications
related to its expansion to materialize in coming quarters.
Fitch's analysis of statutory premium and aggregate underwriting performance
of U.S. E&S insurers reveals that E&S underwriters' direct combined ratio
outperformed the property/casualty industry by an average of 11 percentage
points from 2008-2012. E&S writers provide an important role to the insurance
marketplace by creating a market for hard-to-place risks, representing a
relatively modest 6% of U.S. property/casualty insurance industry premium
The full report is available on the Fitch web site at 'www.fitchratings.com'
under 'Insurance' and 'Research'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Excess and Surplus Lines Market
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Dafina M. Dunmore, CFA, +1-312-368-3136
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
Jim B. Auden, CFA, +1-312-368-3146
Brian Bertsch, New York, +1 212-908-0549
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