In our piece on Schedule P reserving earlier in the week, we noted that the industry was playing a balancing game on reserve development as it pulled back on social inflation risks. We predicted that surplus lines would continue to benefit in terms of growth and results due to this development.
With E&S data for 2024 now available, we took a closer look at surplus lines premiums, growth, results and movements by state.
This data reveals that the surplus lines marketplace wrote more than $130bn of direct premiums in 2024, though this represents a slower growth rate of 12.5% when compared to the 14.4% growth that it enjoyed in 2023.
In terms of underwriting performance, E&S also continues to outperform the broader industry’s combined ratio, though this gap has shrunk from a 10% difference in 2023 to a 5% difference in 2024.
At the state level, surplus lines have continued to grow in major markets like California, New York, and Illinois, though they have plateaued in Florida and Texas. Nonetheless, in all five of the largest insurance market states, E&S remains more profitable than admitted lines.
A dissection by line shows that other liability (occurrence) was one of the largest growth sectors for E&S in 2024, having nearly doubled in direct written premiums since 2020, with additional growth coming from commercial auto. However, overall growth continued but at a lower level.
Is the modest decline in growth over time a function of a shift in primary insurers appetite or a natural trend? On the state front, why has the penetration of surplus lines continued to be incremental but not a game changer? Will other liability growth and commercial auto continue to become a greater portion of surplus lines as we witness adverse reserve development for primary carriers?
We believe that surplus lines growth will continue to taper as these carriers continue to build a higher quality portfolio and focus on the most dislocated part of the marketplace. We also anticipate other liability and commercial auto to continue to be a bigger portion of the book, albeit with the latter coming from a very small base. On the state level, surplus lines will likely take a measured growth strategy depending on the political climate in a given state.
Overall, we continue to expect growth to continue to show an orderly decline from the peak over the past few years.
We discuss these trends in detail below.
E&S growth slowed down in 2024, but that was expected
The table below shows some of the largest domestic surplus lines writers in the United States. For 2024, US domestic E&S underwriting grew by 12.5% to $97.5 billion.
US statutory data does not capture Lloyds and other regulated alien companies, so we’ve used AM Best reports for 2022 and 2023’s totals. We have used past growth patterns from these reports to estimate that companies domiciled outside of the US wrote roughly $35bn of business in 2024. This brings the total US surplus lines industry to an estimated total of $134bn for 2024.
The biggest takeaway might be the fact that 12.5% growth represents a slowdown from the 14.4% growth seen in 2023 and 20.5% in 2022.
However, growth is just one part of the equation, and the modest slowdown is a natural movement from the peak witnessed a few years ago of high teens growth.
The chart below shows the industry combined ratio for surplus lines versus the P&C industry’s overall combined ratio. The gap between the industry and domestic surplus lines was more than 10% in E&S’ favor between 2022 and 2023, but 2024 data shows this gap shrinking by half to 5%.
The biggest driving factor was an improvement in overall industry performance owed to strong results in personal lines, which is a small portion of E&S when compared to commercial lines.
As discussed in our piece on industry results, loss ratios for private auto and homeowners’ insurance – approximately 46% of total industry premiums - dropped significantly in 2024.
However, we do not predict these releases to continue due to personal lines’ short-tailed nature and increased competition in the segment.
2024’s overall industry results were also bolstered by releases from workers’ compensation, which we have also predicted will slow down.
In other words, we wouldn’t be surprised to see this gap expand again in 2025.
Commercial E&S growth continues to fall as a whole but picks up in other liability, commercial auto
In our Schedule P analysis earlier this week, we saw a detailed picture of how commercial auto and other liability loss reserves have developed over the past decade. Both were found to have experienced adverse development for all accident years in 2024, notably including the supposedly “hard market” accident years of 2020 to 2023.
Surplus lines growth in 2024 accelerated greatly in both lines, with other liability E&S growing by 13.4% and commercial auto E&S growing by 14.4% (from a relatively small base). For comparison, these lines grew in 2023 by 3.5% and 3.9%, respectively.
As shown below other liability (occurrence) grew by 19.2% to $29.9bn in 2024 vs $25.1bn in 2023. Other liability (claims made) only grew modestly to $15.2bn in 2024 from $14.7bn in 2023.
This comes as overall growth in E&S has slowed substantially, from a peak growth rate of 32% in 2021 to just 13% in 2024.
This slowdown could be representative of E&S beginning to reach the capacity of its niche in most lines, with less market share available to be taken from admitted lines. The acceleration of growth in troublesome classes like other liability and commercial auto points to insurers seeking better rate in those areas, given the unprofitability of the business as it has previously been written.
The chart below shows E&S premiums broken down by the most significant lines of business, combined with the overall growth rate of commercial E&S.
NB: Prior version had labels reversed
State-level data shows E&S growth in some large states, loss ratios show outperformance
The three biggest catastrophe-exposed states are, as one might expect, the three states where E&S forms the largest share of the market. As catastrophes like wildfires and hurricanes have increased in both frequency and severity over the past few years, it also comes as no surprise that the market share of E&S within these states has grown dramatically since 2019.
A new trend seems to be emerging from the 2024 data, with growth in the Florida and Texas E&S markets stagnating between 2023 and 2024. Growth in California has picked up following a plateau there between 2022 and 2023 but nothing earthshattering, while growth has steadily continued in the significant New York and Illinois E&S marketplaces.
We would note that California wildfires losses could result in accelerated growth of surplus lines in that state. This will become especially noticeable if admitted lines are unable to achieve necessary rate increases, which would spur a migration towards E&S.
The chart below shows how E&S market share has developed in the top five E&S states from 2019 to 2024.
The chart below shows the difference in 2024 direct incurred loss ratio between E&S and admitted lines for the five largest insurance markets in the United States.
Another key consideration for surplus lines carriers is whether to continue deploying in the dislocated longer-tail casualty market or also focus on the shorter tail commercial property market. Surplus lines are also aware of the politicization of severe convective storm and wildfire exposed risks and might be more willing to continue sticking to the longer tail side where their specialization can work in their favor.
In summary, E&S premium growth reflects an orderly move along the glide path over the past few years. 2024 results for the segment, while still strong, show that E&S is beginning to settle into its niche rather than continuing to experience the rapid growth that characterized it in the past few years.