In a world of increasingly frequent and severe risks, the excess & surplus lines (E&S) insurance market continues to be the crucial avenue which helps to solve the needs of organizations facing these growing challenges.
In 2024, the market was forecasted to reach $130 billion in gross written premium, and it continues to see outpaced growth relative to the admitted P&C market.
AXA XL’s new Head of Wholesale Solutions for the Americas, Tim Whisler, discusses the state of the E&S market and what organizations can expect in 2025.
Q
How strong is the E&S market coming into 2025?
A
It is going to be another record year for the market in terms of top line premium. Early figures for 2024 suggest that the market has reached $130 billion in premium. Its growth and the significant role the E&S market plays in the overall insurance industry continue to be impressive. In 2018, the market reached $50 billion in premium for the first time ever. If it reached $130 billion in 2024, the market will have grown over two-and-a-half times in the six years since it first reached that $50 billion milestone. When you look back at the last five years, the compound annual growth rate of the E&S market has exceeded 20%. We expect the E&S market to continue grow at a rate that outpaces the overall market.
From a pricing and risk standpoint, overall, the market is very healthy. There will always be pricing cycles, and we’ll manage through them. We’re seeing softening in property rates, but most of the business is still priced at attractive levels. Other areas such as casualty are continuing to harden as the market responds to the very real challenges in the legal system and to inflation, which are driving increased loss costs. There is certainly more capital flowing into the E&S market, but it’s encouraging to see the market remain disciplined around capacity deployment, which is necessary for the long-term health of our market.
Q
What factors have contributed to the market’s growth and sustainability?
A
At its core, the E&S market will always be a home for harder to place risks, and the world is becoming a riskier place. Real inflation puts pressure on loss costs. The challenges in the legal system have led to a dynamic where excess casualty verdicts, including nuclear verdicts, are multiples of what they were years ago. In property, CAT losses have been larger and more frequent than other periods of history. These increasing and evolving risks are challenging to solve for in the admitted space. E&S is the solution for these challenges with the freedom of rate and form that we have. Some of the growth we’ve seen has been due to hardening rates, including the flow through of increased reinsurance costs, but it’s not just about rate and there has been a huge volume increase as well.
The E&S market has and always will act as a crucial relief valve for insuring risks that can’t find coverage in the admitted market, but there’s more to the story. What can’t be overlooked is the value added by the wholesale brokers in the E&S market, and the expertise they bring to the table. Gone are the days of the E&S market being solely the market of last resort. Today’s wholesale brokers bring a level of product expertise and specialization, market access, and efficiency that adds significant value to insureds and retailers alike.
Q
What are the biggest challenges facing the E&S market?
A
E&S companies still face many challenges from an underwriting perspective, from increased frequency and severity of CAT events in property, to the legal system challenges that increase the size of casualty verdicts. Careful and thoughtful deployment of capacity are hedges against these challenges.
One of the challenges that’s probably most amplified in E&S is the ability to keep up with the ever-increasing volume of business flowing into the channel. Building and developing an underwriting team with the experience and acumen to respond quickly to opportunities and pairing them with systems and processes that allow for the speed and ease needed in our space is a challenge that every market is facing. Companies that invest in technology and have a clear vision and culture dedicated to the wholesale channel are best positioned to address this challenge head on.
