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In 2002, we learned what a hard market feels like.
The market share of the top 10 surplus line brokers decreased from 47 percent to 43 percent of the market in 2002. In this market, we have greater distribution among the brokers.
The average premium per policy increased from $8,438 in 2001 to $10,441 in 2002. The surplus line premiums more than doubled this year from $1.7 billion in 2001 to $3.6 billion in 2002.
Where were the gains?
With those figures, the obvious question is, what lines of coverage experienced this gain?
The lines of coverage that had the greatest increase in volume in 2002 compared to 2001 are as follows: Homeowners’ multiperil—145 percent; fire commercial property—157 percent; commercial DIC/stand alone earthquake—164 percent; individual insureds w/large schedules—total insured value of $500 million or more—174 percent; all risk commercial property—195 percent; professional liability—207 percent; excess liability—262 percent; aviation—341 percent; general liability, which represents the greatest single line in surplus lines, increased by only 124 percent in 2002.
Who is writing this business?
You may also be wondering what types of non-admitted carriers are writing this new business.
In 2002, foreign carriers wrote $2.7 billion in premiums—a 75.8 percent increase.
Lloyd’s wrote $579.5 million in premiums—a 16.5 percent increase.
Alien carriers—other than Lloyd’s wrote $193.2 million—a 5.4 percent increase.
The SLA maintains a staff of financial examiners that work closely with the California Department of Insurance to review and make recommendations on the applicants for Insurance Commissioner’s List of Eligible Surplus Line Insurers (LESLI). For the SLA examiners, the special developments and circumstances behind the hard market warrant a move toward more vigilant surveillance of the companies currently writing surplus lines business in California as well as those insurers applying to become eligible in this state.
In addition to the usual catastrophies, mergers, acquisitions and insolvencies, the last two years have been fraught with several extraordinary events and developments, most notably: the terrorist attacks of Sept. 11 and their aftermath—the depressed equity markets, inadequacy of insurer reserves, rising asbestos and environmental claims, the effects of large corporate bankruptcies on insurer earnings as well as their surety and D & O coverages, and availability crisis in the areas of medical malpractice, homeowners, and construction defects, the rising cost of workers’ compensation coverage, particularly in California, and of course the potential liabilities related to mold.
These things have hit the marketplace very hard. So despite of the market hardening that began after Sept. 11, many of the LESLI-listed insurers suffered downgrades by the major rating agencies while simultaneously becoming “high priority” companies.
The end result was an increased need for more comprehensive and in-depth evaluations of a number of the non-admitted insurers currently operating in California, as well as those companies applying for eligibility.
Industry outlook
Although many industry leaders remain optimistic, they also believe 2003 will bring great unknowns. For the most part, they generally agree that:
• A stock market improvement is likely to occur this year, but with historically low interest rates and possibilities of war and/or another terrorist attack, it is not likely to improve dramatically.
• Mergers, acquisitions and consolidations will probably continue, due to the insurance industry’s low profitability relative to other industries as well as the abundant competition within the industry.
• Terms and conditions of many types of liability policies will be re-evaluated in light of increased attention on corporate responsibility, accountability, the possibility of terrorist acts, and judicial and jury decisions.
Ted Pierce is executive director of the Surplus Line Association of California. The Surplus Line Association of California is an organization of 460 surplus line brokers who are licensed by the State of California to negotiate and place insurance with non-admitted insurers. The Association serves as the official surplus line advisory organization to the California Department of Insurance. These figures provided in this article are based in surplus lines production in California only.
Ted Pierce is executive director of the Surplus Line Association of California. The Surplus Line Association of California is an organization of 460 surplus line brokers who are licensed by the State of California to negotiate and place insurance with non-admitted insurers. The Association serves as the official surplus line advisory organization to the California Department of Insurance. These figures provided in this article are based in surplus lines production in California only.
Editor’s Note: For more surplus lines coverage, see page 78.