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A.M. Best Special Report: Domestic Surplus Lines Insurers Reverse Downward Trend

Source: A.M. Best

Posted on 03 Oct 2012 by Neilson

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insurance companiesMany surplus lines insurers have reported lessening competitive pressure from standard market companies. While this trend has not signaled a decisive shift in the market, it was enough to help reverse the four-year decline in the premium produced by domestic professional surplus lines (DPSL) writers, which reported a 3.2% increase in direct premiums written (DPW) in 2011. DPSL insurers generated 72.5% of total surplus lines DPW for the year.

The reversal in premium trends also was exhibited during the first quarter of 2012, as DPW for the surplus lines industry increased approximately 7% (compared to first quarter 2011). In addition, key performance measures for the surplus lines composite in 2011 continued to outpace that of the total property/casualty (P/C) industry.

In terms of some key operating performance metrics, the margins between surplus lines insurers and the P/C industry increased slightly in 2011 after narrowing in recent years.

Despite the catastrophic events of 2011, low investment yields and continued competitive pressures, surplus lines specialists, particularly the market leaders, once again generated considerable operating profits and returns on both revenue and surplus.

As for the top 25 surplus lines insurers, DPW increased 1.4%, which again somewhat reflects the subtle turn in the market. While it is inconclusive as to whether or not any of this growth was caused by standard market insurers returning business back into the surplus lines market, it has become increasingly apparent that a growing number of standard market insurers have been publicly expressing the need for rates to increase.

Lloyd's maintained its spot as the leading surplus lines writer in terms of DPW in 2011, generating just under $5.8 billion compared to the slightly more than $5.3 billion reported by second place, American International Group, Inc.

For the eighth year in a row, the surplus lines industry reported no financially impaired companies. This was in marked contrast to the admitted P/C industry's 34 disclosed financial impairments for the year.

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