AM Best has revised its outlook for the US excess and surplus (E&S) lines segment to stable from positive, reflecting moderating premium growth and early signs of rate softening.
The review found that while underwriting and operating profitability remain supportive, rate momentum is easing in select classes and loss cost uncertainty, including social inflation and catastrophe volatility, requires caution.
The report highlighted that commercial property, directors' and officers' liability, cyber liability, and risks from the legal cannabis sector are increasingly moving into the E&S market. Rising weather-related catastrophes, higher rebuilding costs, and supply chain delays have also pushed more homeowners' business to surplus lines.
Delegated underwriting authority enterprises (DUAEs) are helping carriers develop customized coverage solutions, while global reinsurance, including the London market, remains a major participant. However, tighter collateral requirements, increased oversight for fronted programs, and rising data and reporting expectations, particularly at Lloyd’s and in the UK, are adding operational complexity.
The US E&S market, a major arena for DUAE activity, remains robust but shows signs of moderation, AM Best said. After seven consecutive years of double-digit premium growth, E&S carriers recorded an 11% increase in direct written premiums in 2024, outpacing the broader P/C market, though slower than prior years.
In H1 2025, surplus lines premiums in reporting states rose 13.2%, with commercial liability and property lines dominating. E&S's share of the P/C market has grown to approximately 9%, nearly double its 2017 level.
Underwriting profitability remains strong, with the combined ratio for E&S carriers at 88% in 2024, but rate momentum is softening in select classes such as commercial property. Growth in catastrophe-exposed geographies is cooling, and premium increases are more selective. At the same time, DUAEs and fronting arrangements continue to provide innovative, tailored coverage solutions, sustaining the market’s appeal for specialty insurers despite evolving risk trends and tightening capital and regulatory requirements.
AM Best concluded that E&S carriers will continue to benefit from these market tailwinds, but premium growth, capacity deployment, and rate momentum are expected to be more measured under current conditions.
