Surplus Lines Premiums Down in 2009; But Brokers Say Market is Stabilizing

The surplus lines industry continues to experience a decline in direct premiums written (DPW). For a third consecutive year in 2009, the surplus lines industry’s DPW fell 4.1 percent, an improvement over 2008 where the DPW fell 6.2 percent. Despite the improvement, the surplus lines industry’s decline n premiums came in at a higher rate than that of the overall property/casualty industry, where premiums overall fell 3.3 percent, according to an A.M. Best Co. special report.

But surplus lines brokers remain optimistic and say that the market is stabilizing.

The surplus lines market seems to be stabilizing, says Dick Bouhan, executive director of the National Association of Professional Surplus lines Offices (NAPLSO). Bouhan says optimism can be found in the number of attendees registered at this year’s NAPSLO Annual Convention, Oct. 11-14 in Atlanta, Ga.

“We are ahead of last year by 300 registrants; total registration is at 3,100 this year and we could hit 3,200 by the conference,” Bouhan says.

Pressures on the Market

Standard market carriers competing on traditional surplus lines risks continues to drive pricing pressure and profit margin compression in the surplus lines market, the report says. Despite heightened competition, surplus lines specialists, particularly the market leaders, generated considerable operating profits and returns on both revenue and surplus.

“Things look OK for the insurance companies,” Bouhan said, noting there have been no carrier insolvencies in the surplus lines industry for six consecutive years. “And that’s a good trend.”

Also, combined ratios for surplus lines specialists are solid and better than the total P/C industry.

The industry’s increased stability has led to an uptick in NAPSLO membership as well.

Bouhan says that while NAPSLO has experienced some contraction of its membership in recent years – mostly in branch office locations – he’s also seen new members come through the door. The association saw 15 new member applications this quarter alone.

“We are starting to see start ups being formed,” Bouhan says. And he also expects to see some members who may have left NAPSLO begin returning.

A.M. Best said nine of the top 10 U.S. surplus lines groups by DPW remained the same as in 2008, and the rankings from one to eight did not change. Also, three groups experienced DPW growth: QBE Americas Group, Munich-American Holding Corporation and Endurance Specialty Group.

Topics Trends Agencies Excess Surplus Pricing Trends