Wind in the sails…

By David Bull

Feb 28 - (The Insurer) - For at least the last two years certain industry savants have been calling time on the boom period in the E&S and specialty insurance market.

But in early 2025 there are few signs of material change in conditions that have been driving double-digit growth.

As we report later in this issue, AM Best, which continues to hold a positive outlook on the E&S market, predicted in a recent U.S. P&C market update that the tailwinds driving these attractive conditions will be sustained beyond the short term.

The firm said that this is creating an environment of plentiful opportunities for new players in the sector, as the E&S space continues to draw in business and serve its function as a “safety valve” for the declining capacity in parts of the admitted commercial lines and personal lines markets.

And during Ryan Specialty’s fourth-quarter earnings call, Tim Turner said that the historically cyclical ebb and flow of business between the admitted and non-admitted market doesn’t seem to be playing out, at least for now.

“In any cycle, as certain lines are perceived to reach pricing adequacy, admitted markets tend to step back in on certain placements. However, this is still not playing out in any measurable way, and the standard market has not meaningfully impacted the rate or flow,” he told analysts.

Much has been written in recent years about that change in the relationship between the admitted and non-admitted sectors and the factors that are driving it.

For Turner, it is the result of a world where risks are escalating and becoming more complex, driven by AI, cyber threats, climate change, social inflation and political unrest. This means more risks are flowing into the E&S marketplace, which can offer solutions that would otherwise not be available.

“We believe E&S will continue to outpace growth in the admitted market overshadowing any cyclical shifts,” he said.

As we report in one of our lead articles this month, M&A advisory firm MarshBerry is predicting that the E&S market’s share of the total commercial U.S. P&C industry will be equal to or exceed 25% by next year. That compares to less than 14% as recently as 2017.

PRICING EQUILIBRIUM

The firm said that one key factor behind this long period of sustained growth is a P&C insurance market where pricing is yet to find equilibrium. This is particularly evident in casualty, where there is greater scrutiny on underwriting than seen for several decades.

At the same time, there is a clear divergence in performance between admitted and non-admitted carriers. E&S players have delivered underwriting profits in the last three years, whereas the broader P&C industry lost money in 2022 and 2023 and is looking at a breakeven underwriting result in 2024.

That divergence is largely attributed to the freedom of form and rate afforded to E&S carriers, and their ability to exclude risks from their policies.

Of course, as well as strong relative performance at E&S carriers, wholesalers and specialty MGAs have continued to enjoy arguably a best-ever operating environment.

MarshBerry, at its Peak Performance Summit in Utah earlier this month, highlighted a 15-year super cycle for specialty distribution. It also said it expects the specialty insurance segment, which also includes admitted specialty delegated authority business, to grow 15% this year to $240 billion.

The firm’s chairman and CEO John Wepler described an investor environment where there is “overwhelming demand” from the equity market to place bets in the distribution space because of its “outsized, best-in-class investment returns”.

That is expected to continue to drive M&A in the specialty distribution space, with activity forecast to pick up in 2025.

The tailwinds may not prevail forever, but for now the sails are trimmed and the course is set…