Surplus Lines Insurers See Growth Amid Challenging Market Conditions

Premiums generated by nonadmitted insurers in the US surplus lines market continue to rise, according to a new Best's Special Report by AM Best, highlighting opportunities emerging from ongoing property-casualty sector pressures.

The report notes a 12.1 percent year-over-year increase in 2024 for surplus lines insurers reporting to the 15 state service and stamping offices. Over the past 3 years, premiums processed by these offices rose by 28.8 percent, driven largely by turbulence in lines of business affected by post–COVID 19 macroeconomic challenges.

"Although personal lines coverage, specifically homeowners' insurance, remains a relatively small part of the overall surplus lines market, increased writings in that segment have contributed to the consistent premium growth for surplus lines—or nonadmitted—insurers," David Blades, associate director at AM Best, said. "Many states, in addition to multiple lines of business, have been key contributors to the momentum buoying the surplus lines market."

California, Florida, Texas, and New York continue to account for the largest share of surplus lines premiums. Even before the devastating California wildfires earlier this year, heavy rains and mudslides produced unfavorable outcomes for admitted insurers, leading many to reconsider their risk exposure.

"The California property market is likely to face more challenges in the near term, and surplus lines' insurers could look to fill supply gaps as more admitted insurers become reluctant to provide market capacity in areas of the state," Mr. Blades said.

The flexibility of surplus lines insurers has enabled them to meet market demands, with homeowners' surplus lines premium more than doubling over the last 6 years, increasing from $1.0 billion in 2018 to $2.2 billion in 2023. This period coincided with heightened volatility in year-over-year homeowners market profitability across the property-casualty sector.

General liability coverages continue to comprise the largest portion of the surplus lines market in terms of direct premiums written. Preliminary 2024 data show an almost 10 percentage point deterioration in the property-casualty industry's net incurred loss ratio for the "other liability (occurrence)" coverage line, the larger of the two general liability lines.

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