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Surplus Lines Continue to Battle Market Forces

Posted on 02 Nov 2009

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The surplus lines sector of the property-casualty insurance market showed a 67% decrease in profit last year when compared to 2007. The persistent soft market, the recession, and underwriting and investment losses have hurt the sector, but its underwriting and operating performance of surplus lines companies continued to outpace that of the total property-casualty industry, according to A.M. Best Co.

The ratings service said that expected market competition began affecting the performance of the surplus lines insurers to a greater extent last year than in 2007.

Standard market carriers continue to compete on surplus lines risks, and efforts by American International Group, Inc.’s surplus lines companies to protect their renewal portfolios also have contributed to the sustained competitiveness in the market, the ratings services said. Other pressures came from the Bermuda-based carriers with their substantial capital and the desire for top-line growth, A.M. Best said.

Overall, surplus lines insurers remained very well capitalized, managed the market cycle adequately and maintained conservative balance sheet strength, it reported.

In 2008, the surplus lines direct premium written declined by the largest percentage since 1988.

Weather-related losses on natural catastrophe-exposed business caused combined ratios to rise, while favorable reserve development reduced the combined ratio by 10.7 points.

Total investment losses of $161.3 million were generated, off from the $2.38 billion total gain in 2007. Meanwhile, policyholders’ surplus declined for the first time since 2001.