Best’s Market Segment Report: Surplus Lines Insurers Push Through Various Headwinds to Enhance Growth

OLDWICK, N.J.--(BUSINESS WIRE)-- The surplus lines market continued to grow in 2017, and at a greater rate than in the previous two years, generating a 5.8% year-over-year increase in direct premiums written, according to a new A.M. Best report.

The Best’s Market Segment Report, “Surplus Lines Push Through Various Headwinds to Enhance Growth,” states that the surplus lines market growth was up notably from just under 3% in each of the two preceding years. Direct premiums remain a key metric for identifying companies actively competing in the market, as it captures the impact of rate increases and writing new business. Growth was constrained somewhat by competitive pressures, including pressure stemming from traditional surplus lines business written by admitted companies. Lloyd’s and non-Lloyd’s regulated alien insurers generated the largest percentage of direct premium growth, at 7.5% and 7.6%, respectively, and these increases mainly drove the overall 2017 market growth.

Weather-related losses led A.M. Best’s composite of the domestic professional surplus lines (DPSL) insurers—which write more than 50% of their business on a non-admitted basis—to post an underwriting loss for the third consecutive year, as well as a drop in net investment income. However, net investment income remained solid at $1.5 billion and helped to offset the underwriting loss. All told, DPSL insurers experienced declines in pretax and net profits to $306 million and $728 million, respectively. The DPSL composite’s combined ratio remained virtually flat in 2017 compared with the previous year at 107.4, while the combined ratio for the entire U.S. property/casualty industry deteriorated by more than three percentage points to 103.9 in 2017.

Consolidation among surplus lines insurers continued to impact market competition in 2017. A.M. Best believes that consolidations will continue for some time, driven by entities already operating in the surplus lines insurer or wholesale broker market and from private equity.

For most lines of business—other than the property catastrophe and automobile/transportation lines—competitive market pressures, spurred by a wealth of available capacity, appear to be escalating. The task of competing at the highest level in the surplus lines and specialty market likely will become more difficult for companies that lack the necessary scale, diversification, value proposition or brand recognition to excel. Those companies that do not use available innovations such as predictive analytics as effectively as other competitors do also run the risk of falling behind their competitors. Still, the ability to operate profitably despite tough market conditions and other challenges leads A.M. Best to maintain its view that the surplus lines market is financially sound and should remain so for the foreseeable future.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=278125.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Source: A.M. Best