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.
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