AM Best has revised its market segment outlook on the U.S. excess and surplus lines segment to stable from positive, the rating agency announced in mid-November.

The change comes as rates soften and premium growth moderates.

“Although favorable 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, in a statement about the report, “Market Segment Outlook: U.S. Excess & Surplus Lines Insurance.”

The report also refers to loss cost uncertainty stemming from social inflation and catastrophe-based volatility as factors considered in revising the outlook.

Among the positives: Underwriting and operating profitability continues for E&S insurers, and demand for E&S capacity remains high—including demand for specifically tailored surplus lines coverage solutions responding to new and complex technologies being used in many industries.

According to AM Best, E&S participants are posting more favorable underwriting results and greater top-line growth than insurers participating in the broader property/casualty industry.

Related article: 7 Years of Double-Digit Growth; New Players on Top 25 E&S Insurers List

Admitted carriers continue to tighten underwriting criteria, fueling demand for E&S coverage, the report says. Continued weather volatility, together with high repair and rebuilding costs are factors driving demand for homeowners insurance in the surplus lines market. Lines like commercial auto, directors and officers liability, and cyber liability are also increasingly being placed in the E&S market.

On the supply side, AM Best noted that market conditions support the entrance of new participants but that “capacity is becoming increasingly more selective on terms and conditions and is raising performance thresholds at renewals.”

Highlighting another factor tipping the scales toward a stable rather than a positive outlook, the report says that collateral requirements and oversight for fronted programs are tightening, and data and reporting expectations, particularly at Lloyd’s and in the United Kingdom, are rising, adding operational complexity.

Still, AM Best continues to believe “tailwind conditions for U.S. E&S lines carriers will remain in place,” but that it will be “in a more measured form,” the report states.