AM Best has reaffirmed its positive market segment outlook for delegated underwriting authority enterprises (DUAEs), emphasizing the segment’s sustained growth and specialized expertise. Despite challenges posed by capacity constraints and rapid expansion, the DUAE sector continues to thrive, supported by global premium growth and niche capabilities, a news release said.
According to the Best’s Market Segment Report titled “Market Segment Outlook: Delegated Underwriting Authority Enterprises,” the DUAE segment has benefited from significant growth in the excess and surplus (E&S) market. Elevated catastrophe activity and regulatory factors have driven more premiums into surplus line businesses, contributing to the segment’s momentum.
“The general optimism among insurers and reinsurers about DUAEs persists, with more strategic partnerships being formed between carriers and DUAEs,” said Yizhou Hong, senior financial analyst at AM Best. “These partnerships are generally longer-term and allow capacity support across lines of business, industries, and geographies, instead of simply by program.”
The DUAE segment’s expertise aligns with the insurance industry’s increasing demand for specialty products, the news release highlighted. Investments in technology and talent have bolstered the segment’s growth. However, the report noted the segment’s reliance on E&S and fronting sectors may expose it to heightened dependence on reinsurers and reinsurance, posing potential risks.
Capacity constraints in the reinsurance market could negatively impact DUAEs, resulting in tightened capacity, reduced commission income, narrower underwriting margins, and weaker overall financial performance. Additionally, the segment faces rising exposures to reinsurer credit and concentration risks.
The report also emphasized the importance of robust internal governance and controls to manage risks associated with the DUAE segment’s rapid expansion.
A DUAE is defined by AM Best as a third party appointed by a (re)insurer through contractual agreements to manage underwriting, claims handling, and administrative functions. Entities within this segment include managing general agents, coverholders, program administrators, program underwriters, and appointed representatives.
AM Best, a global credit rating agency and data analytics provider specializing in the insurance industry, operates in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore, and Mexico City.
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