AM Best


A.M. Best Special Report: Surplus Lines Profits Rebound as Catastrophes Ease, But Rates Go Flat


CONTACTS:


Kenneth Monahan
Financial Analyst
(908) 439-2200, ext. 5342
kenneth.monahan@ambest.com



Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - SEPTEMBER 15, 2014 10:11 AM (EDT)
Surplus lines insurers enjoyed some relief in 2013, with relatively light catastrophe losses after the devastation inflicted by Superstorm Sandy in 2012. The aftermath of the storm raised distant prospects of solidifying surplus lines insurers' place in covering flood risk, but that issue aside, the surplus lines market continues to grow through unique and creative products designed in close cooperation with brokers and insureds, according to a Best's Special Report.

This well-established formula has led surplus lines companies to great success over the years when compared with the overall property/casualty (P/C) industry. The domestic professional surplus lines peer composite experienced a sharp rebound in profitability during 2013, as both pretax and net income more than doubled on the strength of a return to profitable underwriting and robust growth in investment gains.

A.M. Best views the surplus lines insurance market as stable but believes profit margins may shrink in the near term as average rate increases diminish on various lines of coverage. The balance sheets of professional surplus lines carriers have endured many challenges in recent years and maintained considerable strength to support future operating plans. Accident year reserve development for surplus lines companies has been slightly more favorable than that of the overall P/C industry, but the gap has been shrinking as the markets wrestle with excess capacity, low interest rates and capital outlays to enhance operational efficiencies. A.M. Best expects surplus lines insurers' underwriting to remain disciplined.

The legal and regulatory environment surrounding surplus lines remains active. Several pieces of legislation that could impact the industry were introduced in the 113th Congress. One is the still pending Terrorism Risk Insurance Program Reauthorization Act of 2014. Another bill, the National Association of Registered Agents and Brokers Reform Act, which had been introduced in previous congressional sessions, is advancing in the current Congress by being attached to other legislative proposals. Also, recently introduced legislation, the Flood Insurance Market Parity and Modernization Act of 2014, would ensure that surplus lines insurers are eligible to offer private market solutions to consumers needing specialized flood coverage.

These insurers' partners in the business--the wholesale and retail distribution channels--are being transformed through consolidation and specialization, as intermediaries maneuver to hold their positions or establish new ones in a competitive marketplace. Generally flat rates across most lines of business make scale or unique skills increasingly important for distributors to stand out. Meanwhile, ever-changing technology demands constant attention to maintain competitive levels of efficiency and ease of doing business with customers.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=228589 .

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