Specialty Insurance Blog

AM Best E&S Insurance Review

AM Best has released the 2009 review of the excess & surplus lines (E&S) insurance market (see here, PW protected?), called 2009 Special Report, U.S. Surplus Lines – Market Review.  The annual review is conducted by AM Best from a grant provided by the Derek Hughes/NAPSLO Educational Foundation and has been produced annually for a number of years.  The review notes:

• Market competition has driven both premiums and profitability down
• Surplus lines premium totaled $34.4 billion in 2008, while the entire property/casualty insurance industry premium totaled $493 billion
• The total PC industry DPW declined by 2.63% in 2008, while the total surplus lines industry premium declined by 6.2%
• Overall, the surplus lines industry posted a 2008 combined ratio of 93.6 compared to a 105.1 for the entire PC insurance industry
• The 2008 combined ratios for the top E&S insurance specialists ranged from a low of 47.6 to a high of 116.8
• The two largest E&S writers (groups) are AIG (23.5% market share) and Lloyds (19.7% market share)

Historically, the surplus lines industry results have exceeded the overall PC industry by a significant margin.  For 2008:

The combined ratio of surplus lines over the past five years has annually outperformed the P/C industry by an average of approximately 11 points. The surplus lines industry’s loss and LAE ratio also outperformed the overall industry by an average of 8 points over the past five years.  At year-end 2008, underwriting results for the surplus lines peer composite outperformed the overall P/C industry by a considerable margin, as illustrated by the 11.5 percentage point difference in the combined ratio. This gap closed somewhat in 2008, however, due to the large and frequent weather-related losses on natural catastrophe-exposed business, a great portion of which is covered by surplus lines insurers.

AM Best points out that the surplus lines industry faces challenges in the future, including the soft insurance market and the use of technology, including the application of analytic approaches to underwriting and rating risks.

The study is always well received and extremely informative.  Additional perspectives include National Underwriter articles here and here and a Business Insurance article here.  An explanation of the excess & surplus lines insurance market, the market solution for all types of specialty lines insurance, can be found here and here.

Brought to you by Tennant Risk Services.

 

Insurance Predictions

Dr. Robert P. Hartwig, CPCU, President of the Insurance Information Institute (I.I.I.), provided some insights into the economy and the insurance industry at the recent NAPSLO annual meeting.  See his slides here, and a National Underwriter summary here.  Some interesting observations:

• We are facing a recession and a soft market at the same time, which is not typical and has dramatically reduced demand.
• The economic challenges have changed insurance customer behavior including increased efforts to reduce insurance costs, like shopping, and causing higher claims frequency in lines such as workers comp.
• Business starts normally rise at the end of a recession and drive job creation, but the seizure in the credit markets has prevented an increase in new businesses so far. An upturn in business starts is necessary to drive job creation and commercial insurance growth.
• The impact of the recession is not consistent across the US, with parts of the country doing much better and recovering much faster than others.
• Demand for insurance is down, capacity is strong, and underwriters’ perception of risk is unchanged. This means that, barring an unforeseen external shock, a market turn is not imminent.
• Insurers will likely report flat top line results and improving bottom line results for the 3rd quarter, not deteriorating results as some expect.
• Inflation is a risk a few years in the future (not short term), and will impact insurance costs from rising severity, reserve and rate inadequacy, and the penetration of retention and reinsurance attachment points.
• We can expect deterioration in the tort system over the next few years, possibly resulting in a tort crisis.

In addition, Dr. Hartwig discussed future opportunities and challenges for our industry, including specific sectors of growth and tort challenges.  Mr. Hartwig identified 11 industries for the next 10 years:

Government
Education
Health Care
Energy (Traditional)
Alternative Energy
Agriculture
Natural Resources
Environmental
Technology
Light Manufacturing
Export Oriented Industries

The slides are an excellent source of information (see here).

Brought to you by Tennant Risk Services.