Catastrophic events, the economy and changes in reinsurance capacity have the greatest impact on the availability and pricing of specialty lines coverage in 2009, according to professionals in the surplus lines industry.
Yet despite an economic slowdown, the majority of wholesale brokers and excess and surplus (E&S) lines carriers are not seeing a decline in capacity or a tightening of terms along specialty lines. But according to a new industry survey, members of the National Association of Surplus Lines Offices (NAPSLO) are seeing an increase in submission activity in the E&S market.
The survey, which was conducted in mid-May 2009, compared results of the first quarter in 2009 to the same period of 2008.
“NAPSLO members confirmed that pricing, capacity and terms in specialty lines remain relatively flat, but recognized that a major catastrophic event or changes in the economy could have a significant impact on capacity,” said John Wood, NAPSLO president. “During these uncertain times, wholesale brokers and surplus lines carriers remain strong with ample capacity to meet specialty lines needs in any market cycle.”
Nearly half of the respondents (48 percent) said that they were not seeing a change in the availability of specialty insurance coverage. Some 38 percent said they were seeing an increase in coverage availability and only 12 percent said they were seeing a decline in availability.
Regarding terms and conditions on specialty coverage, 44 percent of the survey respondents indicated the limitations on coverage were about the same in the first quarter 2009, when compared to the first quarter of 2008. Another 31 percent said terms were loosening, and 22 percent said terms were either tightening or tightening slightly.
More than half of the respondents reported submission activity increasing, with 32 percent reporting a slight increase and 22 percent reporting consistent increases. Only 23 percent reported declining submissions and 22 percent reported submissions were about the same in the first quarter 2009 compared to the first quarter of 2008.
Specialty insurance lines where respondents reported seeing the greatest increase in submission activity in 2009 were: property, general liability, casualty, and catastrophe exposed property.
Mike Ardis, communications director for NAPSLO, said that while submissions for new business to the E&S industry had slowed down last year, wholesale brokers never saw submissions drop off completely. “There still are a number of submissions” of new business, he said.
When asked what factors would have the potential to have the greatest impact on availability and pricing on specialty lines in the remainder of 2009, respondents most frequently cited the economy, catastrophic losses and declining capacity among carriers and reinsurers.
Respondents were also asked about pricing and retention level changes along 10 specialty lines of business: property, catastrophe exposed property, casualty, professional liability, D&O – private, D&O – public, health care and medical malpractice, excess and umbrella, environmental, and transportation.
Of the 10 areas, catastrophe exposed property was the main area where respondents consistently saw increases in pricing. Some 33 percent of respondents reported that catastrophe exposed property increased 0 to 10 percent, while 23 percent reported seeing increases of greater than 10 percent.
Public directors and officers liability lines also saw increases. Sixteen percent reported seeing increases of 0 to 10 percent, while 5 percent reported seeing increases of 10 percent or more.
Most lines reported seeing flat pricing trends as well. Some 66 percent reported property and excess and umbrella pricing as flat; 64 percent reported professional liability as flat; 57 percent reported seeing environmental liability as flat; and 50 percent reported D&O for private firms as flat.
A number of respondents saw decreases in pricing of greater than 10 percent as well for: property (30 percent), casualty (51 percent), professional liability (12 percent), excess and umbrella (24 percent), environmental (15 percent) and transportation (11 percent).
While availability, terms, pricing, and submission activity were comparable to 2008, respondents reported decreased retention levels in many of the 10 specialty lines surveyed, led by casualty, property, excess and umbrella and transportation. While significant decreases were reported along these lines, the majority of respondents reported retention levels were about the same along all lines.
Survey results are available to download from the NAPSLO Web site.
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