Surplus Lines premiums, market share & underwriting results improve in 2006, according to A.M. Best report

After two years of limited growth, surplus lines insurers reported that direct premiums written increased by more than $5.4 billion in 2006 to $38.7 billion overall, increasing the surplus lines industry share of the property & casualty market to 14.37%, according to a recent report by A.M. Best. The improved numbers also resulted in strong underwriting results for the industry.

The A.M. Best Co. Special Report on the Surplus Lines Market, the 14th annual study, was released today in New Orleans at the 2007 Annual Convention of the National Association of Professional Surplus Lines Offices (NAPSLO).

Premium Growth & Market Breakdown

The surplus lines market has grown significantly over the past several years, especially domestic professional carriers. The five-year growth direct written premium of approximately 173% for the domestic professional surplus lines group dwarfs that of the total U.S. property/ casualty market of approximately 40% despite considerable slowing in the growth of surplus lines in 2004 and 2005.  A moderate increase followed in 2006.  

The Lloyd’s Market

Lloyd’s remains a market leader for U.S. surplus lines business, with direct written premium of approximately $6 billion in 2006, representing approximately 16% of the surplus lines market.  The primary reasons for the increase in Lloyd’s surplus lines premium volume over the past few years have been prevailing hard marker conditions, marketing activity and enhanced awareness of Lloyd’s security ratings among buyers and producers. 

In July 2007, A.M. Best affirmed the “A” financial strength rating and upgraded the issuer credit rating to “A+” from “A” of Lloyd’s of London, reflecting its strong capitalization, excellent operating performance, reduced exposure to reinsurance credit risk and strong global business profile. Overall, A.M. Best believes Lloyds will continue to benefit from its substantial participation in the U.S. surplus lines market, despite the volatile earnings inherent in surplus lines business.

Solvency

The surplus lines industry reported strong overall underwriting results again in 2006, as companies benefited from a benign catastrophe season and continued underwriting discipline.  The earning of prior-year premium throughout 2006 had a positive effect on underwriting results, leading to another year of profitable operating results. At year-end 2006, underwriting results for the surplus lines composite outperformed the overall property/casualty industry by a considerable margin, considering the 13 percentage point difference in the combined ratio.  The gap widened in 2006, although it was not as great as the 15-point spread as of year-end 2002. 

Annual Study

The Special Report on the Surplus Lines Market, commissioned by the Derek Hughes/NAPSLO Educational Foundation, is the 14th annual study of the surplus lines industry which analyses the various segments of the U.S. excess and surplus lines market and provides A.M. Best’s perspective on the industry’s operating performance, financial condition, solvency trends, stability and emerging issues in the market. In addition to the financial review of the industry, the surplus lines distribution systems was a focus of the special sections topic of the report, examining licensing and compliance, tax reporting; pending legislation; commissions; relationships, and mergers and acquisitions.