Morgan Stanley sees growth in excess&surplus insurance markets

Investing.com -- Morgan Stanley starts coverage on Kinsale Capital Group Inc (NYSE: KNSL), Ryan Specialty Group Holdings Inc (NYSE: RYAN), and Brown&Brown Inc (NYSE: BRO) with "overweight" rating, while noting their strong underwriting discipline and pricing power.

Brokerage says excess and surplus (E&S) insurance market will benefit from pricing trends, with a supportive macroeconomic environment expected to persist through 2025 and beyond.

The E&S market, which operates outside of traditional state-regulated insurance frameworks, has seen significant growth as insurers exit unprofitable markets such as California and Florida. Rising loss costs, social inflation from increasing litigation expenses, and persistent risks from natural disasters like hurricanes and wildfires have made it difficult for admitted insurers to maintain profitability in these regions.

"Insurers have been moving toward the E&S market, which gives them more flexibility around pricing and terms&conditions. States where insurers are reducing admitted market exposures tend to have large exposures to E&S market," Morgan Stanley (NYSE: MS) analysts wrote.

This shift is contributing to the E&S market becoming a larger share of the overall insurance industry, with a superior growth profile compared to traditional insurers.

Major insurers have increasingly chosen to retreat from high-risk areas, citing the inability to charge rates sufficient to offset soaring claims and repair costs driven by inflation. In contrast, E&S insurers are better positioned to adapt, leveraging their pricing autonomy to address the heightened risks.

Morgan Stanley’s report underscores the structural growth potential in the E&S market as insurers recalibrate their strategies in response to evolving risk landscapes. Companies that can maintain a disciplined approach to underwriting and capitalize on favourable pricing trends are well-placed to benefit from this shift, the bank noted.

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