The Delegated Underwriting Authority Enterprise (DUAE) sector is maintaining a positive momentum as AM Best has reaffirmed its upbeat market segment outlook. This sector has been steadily augmenting its global market share, riding on robust premium growth and its ability to meet the insurance industry’s appetite for specialty products. The growth in the excess and surplus (E&S) market has been a significant boon, spurred by increased catastrophe activity and a regulatory climate conducive to diverting more premiums into surplus lines.
Moreover, the DUAE segment is witnessing a rise in strategic, long-term alliances between carriers and DUAEs. These partnerships are not just limited to individual programs but are providing capacity support across a diverse range of business lines and geographies. Complementing this growth, investments in technology and talent have added further impetus to the segment’s expansion. However, AM Best’s report does sound a note of caution. The sector’s heavy reliance on the E&S and fronting markets could pose potential challenges.
Reinsurance capacity constraints might lead to a constriction in available capacity, a dip in commission income, a narrowing of underwriting margins, and a subsequent weakening of bottom-line performance. Additionally, the escalating exposure to reinsurer credit risk and concentration risk is a cause for concern. While the short-term prospects of the DUAE sector seem bright, these looming challenges could have a bearing on its long-term viability and sustainability. AM Best defines a DUAE as a third party engaged by a (re)insurer to handle underwriting, claims processing, and administrative tasks, encompassing entities such as managing general agents, coverholders, program administrators, and underwriting agencies.
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