Total U.S. surplus lines direct premiums written (DPW) rose by 19.2 percent to reach a record $98.5 billion in 2022, marking a five-year streak of double-digit growth rate increase, according to a new AM Best report.

The new Best’s Market Segment Report, “Surplus Lines Insurers Focus on Evolving Risks to Sustain Premium Growth,” showed eight of the top 10 lines of the segment’s coverage grew surplus lines direct premiums written by more than 10 percent in 2022, led by the commercial property, commercial auto, and general liability lines, with the latter including boosts the from umbrella and excess liability, cyber, and professional liability segments.

Pricing pressures have continued for many commercial lines of coverage in the past two years, with both nonadmitted and admitted companies focusing on core business and culling what they considered underpriced, borderline surplus lines accounts from their portfolios. These factors help drive the surplus lines share of P/C commercial direct premiums written above 20 percent for the first time in 2021, ending 2022 at 21.6 percent.

Multiple weather-related catastrophe losses, property risks, and an increase in claims totals due to elevated construction costs have enabled surplus lines writers to carve out a bigger portion of total property/casualty (P/C) industry premium, which increased to an all-time high 11.2 percent in 2022, up from 10.4 percent a year earlier.

  • The three states that generate the most surplus lines premium annually were among those showing double-digit growth: California, up 22.2 percent; Texas, up 27.3 percent; and Florida, up 26.5 percetn.
  • New York, the fourth highest state by annual surplus lines premium, increased by 21.2 percent, its second consecutive year of over-20 percent growth after growing only 3.9 percent in 2020.
  • The greatest growth was seen in Nevada (41.8 percent), Minnesota (38.4 percent) and Arizona (29 percent).

However, midyear 2023 growth numbers from the 15 stamping offices that oversee transactions in the excess and surplus, or nonadmitted, market are lower than the year-over-year from 2022.

  • Surplus lines were up 15.9 percent year-over-year midyear 2023 from mid-year 2022, compared to an increase of 32.4 percent in the mid-year 2021 to 2022 numbers.
  • While four of the 15 stamping offices reported double-digit increases mid-year 2023, at midyear 2022, 13 of the 15 offices had reported double-digit year-over-year increases.
  • Surplus lines premium growth reached a high of 25 percent in 2021.

The AM Best report also notes that the demand for cyber coverage has driven an increase in premium growth, More than 50 percent (57.4 percent) is now provided by surplus lines writers, up from 24.5 percent in 2020.

“In our view, the excess and surplus lines segment should continue reporting favorable underwriting results and organic capital generation,” said Robert Raber, director, AM Best. “Volatility in the investment markets could constrain overall operating earnings, but excess and surplus lines insurers typically fare well during cycles when market conditions stress standard market insurers.”

New distribution platforms and partnerships along with geographic or product line diversification also have played an integral role in allowing the surplus lines groups to defend their market positions and fuel the growth of newer surplus lines entities.

This article was originally published on Insurance Journal.