Surplus Lines / E&S Market

The surplus lines market — also referred to as the excess and surplus (E&S) market — is where non-admitted insurance carriers write coverage for businesses and risks that the standard admitted market won't touch. E&S carriers operate without filing rates or policy forms with state regulators, giving them the freedom to price risks individually and draft custom policy language. This flexibility makes the E&S market the backstop for everything from cannabis operations and nightclubs to wildfire-exposed properties and novel technology risks.

Why the Surplus Lines Market Matters for Independent Agents

The E&S market has grown dramatically. Surplus lines direct premiums written surpassed $100 billion for the first time in 2023, reaching a record $115.6 billion according to AM Best. The E&S market now accounts for roughly 24% of total U.S. commercial lines direct premiums written — up from single digits just over a decade ago. For independent agents, this means a growing share of your commercial book may need to be placed with non-admitted carriers, and understanding how the E&S market works is no longer optional.

Several forces drive business into surplus lines. Carriers tighten appetite after catastrophic loss years — following major hurricanes, wildfires, or nuclear verdicts, admitted carriers pull back from affected classes and geographies. Emerging industries like cannabis and cryptocurrency create risks that admitted carriers haven't developed filed programs for. And social inflation has made carriers cautious about classes with high litigation exposure like habitational real estate and trucking.

For agents, accessing the E&S market typically requires working through a surplus lines broker (also called a wholesale broker). You submit the account to a wholesaler like Amwins, Ryan Specialty, or CRC Group, who markets it to E&S carriers. The wholesaler takes a commission (typically 10-15% of premium) off the top, meaning your effective commission on an E&S placement is lower than on a direct admitted placement.

How the Surplus Lines Market Works

The E&S placement process follows a distinct workflow:

1. Diligent search — Before placing a risk in the E&S market, most states require the agent to demonstrate that admitted carriers have been approached and declined. This typically means documenting three declinations from licensed carriers. Some states accept a standardized declination list for certain hard-to-place classes.

2. Submission to wholesale broker — The agent sends the completed ACORD application, loss runs, and supplemental information to a surplus lines broker. The quality of this submission package directly affects the quotes you get back — incomplete submissions get quoted last, if at all.

3. Marketing by wholesaler — The wholesale broker submits the risk to multiple E&S carriers. Major E&S carriers include Lloyd's of London syndicates, Markel, Scottsdale Insurance (Nationwide), Kinsale Capital, and James River. Each has distinct appetite niches.

4. Quote review and binding — The wholesaler returns quotes to the retail agent, who presents them to the client. E&S quotes often include manuscript endorsements and unique policy terms that require careful review — the coverage may be broader or narrower than the standard ISO forms used in the admitted market.

5. Surplus lines tax and filing — The agent or wholesaler collects surplus lines tax from the policyholder and remits it to the state. Tax rates vary by state: California charges 3%, Florida charges 4.94%, and New York charges 3.6%. Some states also require filing with a surplus lines stamping office, which reviews the policy for compliance.

Here's a practical example. A restaurant with a bar that does 60% of its revenue from alcohol sales has been declined by Hartford, Progressive, and Travelers due to the liquor liability exposure. The agent submits to a wholesale broker, who markets the risk to three E&S carriers:

• Carrier A (Lloyd's syndicate): GL with liquor liability, $1M/$2M limits — $8,500 premium + 3% surplus lines tax ($255) = $8,755
• Carrier B (Kinsale): GL with liquor liability plus assault and battery, $1M/$2M limits — $9,200 premium + 3% tax ($276) = $9,476
• Carrier C (Scottsdale): GL only, no liquor liability carve-out, $1M/$2M limits — $7,800 premium + 3% tax ($234) = $8,034

The agent's job is to present these options highlighting coverage differences — not just premium. Carrier B costs more but includes assault and battery coverage that the other two exclude, which could be worth thousands in a single claim.

E&S policies are not covered by the state guarantee fund, so carrier financial strength matters. Agents should verify the E&S carrier holds at least an A.M. Best rating of A- (Excellent) before binding.

Frequently Asked Questions

What is the surplus lines (E&S) market? The surplus lines market is where non-admitted carriers write coverage for businesses and risks that the standard admitted market won't insure. E&S carriers operate without filing rates or policy forms with state regulators, giving them the freedom to price risks individually and draft custom policy language. The E&S market now accounts for roughly 24% of total U.S. commercial lines direct premiums written — up from single digits a decade ago — driven by admitted carriers tightening appetite for high-hazard classes, catastrophe-exposed geographies, and emerging industries.

What types of risks typically end up in the surplus lines market? Risks flow to the E&S market when admitted carriers decline because of class of business (roofing contractors, cannabis operations, nightclubs, habitational real estate), loss history (too many claims or a recent large loss), geographic exposure (wildfire zones, flood-prone coastal areas), or novel operations without established admitted market programs. After major catastrophe years, admitted carriers often pull back from entire states or classes, pushing clean risks into the E&S market that wouldn't have needed it before. Social inflation and nuclear verdicts have similarly pushed trucking, labor-intensive contractors, and certain professional classes toward E&S placement.

How do agents access the surplus lines market? Agents typically access the E&S market through surplus lines brokers (wholesale brokers) like Amwins, Ryan Specialty, RT Specialty, and CRC Group. The agent submits an ACORD application, loss runs, and supplemental information to the wholesaler, who markets the risk to E&S carriers and returns quotes to the retail agent. The wholesaler takes a commission — typically 10–15% of premium — off the top, meaning the retail agent's effective commission on an E&S placement is lower than on a direct admitted placement. Most states require documenting three admitted carrier declinations before placing in the surplus lines market.

What are the key risks of surplus lines policies compared to admitted coverage? E&S policies are not covered by the state guarantee fund, so if the surplus lines carrier becomes insolvent, policyholders have no state backstop for their claims. This makes carrier financial strength — specifically A.M. Best ratings of A- (Excellent) or better — especially important when selecting E&S carriers. E&S policies also carry surplus lines tax (typically 3–5% of premium) on top of the policy cost, which must be disclosed at quoting. And E&S policy forms may use manuscript endorsements rather than standard ISO forms, requiring careful coverage review to understand what is included and what is not.

Related Terms

• Admitted vs Non-Admitted Carrier — The fundamental distinction between state-licensed carriers and surplus lines carriers that determines where a risk is placed
• Carrier Appetite — When admitted carrier appetite tightens for a class or geography, those risks flow into the surplus lines market
• Surplus Lines Tax — The state-imposed tax on surplus lines premiums that agents must collect from policyholders and remit to the state