Best report shows E&S solvency record  continues to match industry's record

Despite rising loss costs, low investment yields, and in most cases going forward, price decreases as the market softens, the A.M. Best Company expects surplus lines industry results to remain strong, according to a review of 2004 insurer financial information.

The Annual Review of the Excess & Surplus Lines Industry, the 12th annual study by Best, was released at the 2005 NAPSLO Annual Convention.

Premium Growth
In 2004, after growing significantly for three consecutive calendar years, direct premium volume for the surplus lines industry remained relatively flat. Overall, direct premiums written by the industry were $33 billion, less than a one percent increase over 2003, and markedly lower than the increases of the previous two years. In 2002 direct premiums were up by 62% and in 2003 were up by 28%. 

Overall, the surplus lines market represented 14.14% of the commercial lines industry in 2004, compared to 6.43% in 1994 and 3.95% in 1984. 

Ratings
On average, surplus lines carriers retained a greater percentage of financial strength ratings in the "Secure" category compared with the total property/casualty industry. During the past four years, the surplus lines composite fared better than the industry, with a smaller number of companies being placed under regulatory supervision than the broader property/casualty insurance market.

Operating Performance
Underwriting results for the surplus lines market showed it outperformed the property and casualty industry by more than 5 percentage points, with a combined ratio of 92.7, compared to 98.1 for the industry.

Legislation
Legislation and regulation was a topic of the report as the U.S. insurance industry issues became major headlines in 2004 and 2005, primarily due to the insurance probe launched by New York Attorney General Eliot Spitzer.     

Some of the other key industry issues addressed include insurance carrier utilization of finite reinsurance, and the uncertainty surrounding the possible renewal of the federal terrorism backstop (TRIA), and the merits of federal regulation of the insurance industry via the SMART Act.