The U.S. excess and surplus (E&S) lines market continues to offer profitable growth opportunities for insurers and reinsurers in the London market – which could help counteract some possible headwinds, according to a report from AM Best.
“Excess and surplus (E&S) lines insurance in the US is a notable contributor to the topline of many London market companies and is expected to continue to provide profitable growth opportunities over the near term,” said the report titled “Market Segment Outlook: London Market Insurance,” which was published on April 8.
AM Best said the outlook for the U.S. E&S segment remains positive, owing to its “significant growth and efficient capacity deployment against the backdrop of declining capacity of admitted carriers.” (The report explained that London market re/insurers write business globally, but there is a geographical bias towards North America.)
U.S. admitted carriers are turning away from property lines, which have seen higher loss activity, higher reinsurance costs and retentions of risk, which are all driving premium dollars into the E&S segment, according to a separate AM Best report, specifically covering the US E&S market, which was published on March 28.
“Other lines being cast off by admitted carriers and finding their way to the E&S segment are commercial auto and directors and officers liability. Cyber liability and the expanding legal cannabis industry also continue to look to E&S carriers,” said the March report, titled “Market Segment Outlook: US Excess & Surplus Lines Insurance.”
A Conning report, published on Jan. 3, 2025, revealed that the U.S. E&S market experienced unprecedented growth, with a 21% compound annual growth rate over the past five years and surpassing $104 billion in premiums in 2023. Conning said the market continues to outperform the admitted market “by addressing complex, nonstandard risks that traditional insurers often reject.” (The Conning report is titled “E&S Insurance: New Challenges, New Solutions.”)
Despite the growing opportunities available to London market re/insurers from the U.S. E&S market, AM Best pointed to some possible headwinds in the form of rate softening, growing climate risks, and rising social inflation in certain business lines. As a result, the ratings agency has revised the outlook for the London market insurance segment to stable from positive.
Rate Softening
Discussing each of these issues in turn, AM Best noted (in its April 8 report) that the pricing environment in the London market for most business lines remains adequate and supportive of favorable underwriting profits – but there are signs of softening.
London market re/insurers have seen several consecutive years of increasing rates, “which coupled with moderate natural catastrophe experience, translated into the market delivering strong underwriting profitability in both 2023 and 2024,” AM Best said.
While most commercial lines rates appear to be moderating – albeit from a high base, “the pricing environment for most business lines to be conducive to supporting good underwriting profitability in the near term,” the report continued.
As a result, underwriting cycle management will be a key focus of London market participants during 2025 and 2026, “particularly if rates continue to fall over the near term.”
Exposure Management Challenges
The London market also faces exposure management challenges – in part from growing climate risks and also from unmodeled risks such as the COVID-19 pandemic and the Ukraine war, the report indicated.
“The cost of global catastrophes has been increasing, and secondary perils – including wildfires, convective storms and droughts – are accounting for an increasingly significant portion of losses,” the report said, explaining that the London market has substantial exposure to natural and man-made catastrophes and has historically paid a material portion of claims from such major events.
The recent California wildfires are likely to result in substantial claims for many London market re/insurers, “eroding a material portion of their catastrophe budgets for 2025,” the report continued. “With hurricane and convective storms seasons still ahead, it will possibly be another year of above average catastrophe losses for re/insurers.”
Social Inflation
Another persistent concern for London market re/insurers is social inflation – defined as the rising cost of liability claims due to changing societal behavior. London market companies have been “increasingly conservative and explicit in pricing and reserving assumptions for several years,” but the “unpredictable nature of this phenomenon means that only time will show whether the current level of prudence has been sufficient.”
Despite these looming concerns, AM Best said, the London market remains “an attractive insurance hub among global markets.”
Kanika Thukral, associate director, analytics, AM Best, and one of the report authors, said: “In recent years, there has been an influx of new syndicates at Lloyd’s and growing deployment of third-party capital. London market companies continue to demonstrate their underwriting expertise by developing new product concepts and providing bespoke coverages.”
“The stable and sophisticated regulatory regimes continue to support the attractiveness of the market. In recent years, modernisation and cost management have been key priorities for the market and efforts made in this regard are likely to help maintain its appeal,” the report continued.
AM Best defines the London market as a hub for internationally traded insurance and reinsurance business, which encompasses Lloyd’s syndicates and non-Lloyd’s specialty insurers and reinsurers operating in London. Most commercial and specialty business written in London requires a high level of underwriting expertise and is principally written through brokers.
Topics Trends USA Carriers Excess Surplus Reinsurance London