Processing at the Surplus Lines Stamping Office of Texas this year confirms what underwriters, agents, and risk managers already know – the hardening of the Property/Casualty market continues.
Through August, the total surplus lines premium on policies reported to the Stamping Office by surplus lines agents increased nearly 34 percent over the same period a year ago. Average premium per policy was up 26.4 percent over last year’s, and almost 35 percent over 1999’s average. Clearly, rates charged in the surplus lines market are higher than they have been in several years.
Of some surprise, what the Stamping Office is not seeing is a concomitant jump in the number of surplus lines policies written. Policies reported by surplus lines agents through August increased a nominal 1.5 percent over the same period in 2000, apparently refuting the view that former surplus lines business underwritten by licensed insurers during the throes of the soft market is migrating en masse back to surplus lines insurers. As one large Texas wholesaler tells me, “We are sure working harder – and our premium volume is way up. But we really aren’t writing that many more accounts.”
Property-Fire/Allied Lines
Premium
Marketshare
1
Underwriter’s at Lloyd’s
$75,444
32.14%
2
Scottsdale Insurance Co.
14,835
6.32
3
Lexington Insurance Co.
14,446
6.1
4
Interstate Fire and Casualty
7,094
3.02
5
Mt. Hawley Insurance
6,795
2.89
Industry Total
234,705
Property-Fire/Allied Lines
Premium
Marketshare
1
Underwriter’s at Lloyd’s
$75,444
32.14%
2
Scottsdale Insurance Co.
14,835
6.32
3
Lexington Insurance Co.
14,446
6.1
4
Interstate Fire and Casualty
7,094
3.02
5
Mt. Hawley Insurance
6,795
2.89
Industry Total
234,705
Auto-Commercial Liability
Premium
Marketshare
1
Underwriter’s at Lloyd’s
$3,045
8.8%
2
Canal Indemnity Co.
2,689
7.8
3
Empire Indemnity Ins. Co.
2,590
7.5
4
General Agents Ins. Co. of America
2,328
6.8
5
American Equity Ins. Co.
2,247
6.5
Industry Total
34,262
Auto-Commercial Physical Damage
Premium
Marketshare
1
Underwriter’s at Lloyd’s
$24,592
51.3%
2
Lexington Insurance Co.
3,146
6.5
3
Old Republic Union Ins. Co.
1,904
3.9
4
St. Paul Reinsurance Co. Lt
1,729
3.6
5
General Agents Ins. Co. of America
1,385
2.9
Industry Total
47,864
* All graphs include the top five 2000 company premiums as reported to the Surplus Lines Stamping Office of Texas and the company’s market shre for the line, calculated by IJ/Texas.
Through the end of August 2001, the largest surplus lines premium increases were evident in the following lines:
Fire & Allied Lines – increase of $100.0 million (64 percent)
Other Liability – increase of $95.2 million (28 percent)
Credit – increase of $17.4 million (65 percent)
Group A&H – increase of $16.3 million (42 percent)
Premium processed by the Stamping Office through August totaled $960.9 million, a 33.9 percent increase over the first eight months of 2000.
For some insurers, premium increases may come too late to effectively reverse years of under-pricing and under-reserving. Rate increases will have little positive effect if claims are rising at a faster pace. Also, recent experience in the equity and bond markets tells us investment income can no longer be relied upon to offset an underwriting loss.
This year, the Texas Department of Insurance has removed 14 insurers from the Surplus Lines Insurers List, including Reliance Insurance Company of Illinois and Frontier Pacific Insurance Company.
Eight of the insurers removed were non-U.S. insurers, continuing a long-term downward trend in their numbers. In 1988 there were 109 alien carriers eligible in Texas. Today there are 45.
Prof-Other (inc. E&O)
Premium
Marketshare
1
American Int’l Specialty Lines
$12,742
17.6%
2
Underwriters at Lloyd’s
12,042
16.6
3
Lexington Insurance Co.
6,807
9.4
4
Admiral Insurance Co.
4,675
6.4
5
Gulf Underwriters Ins. Co.
3,491
4.8
Industry Total
72,312
Prof-D&O
Premium
Marketshare
1
Underwriters at Lloyd’s
$3,944
29.7%
2
Associated Electric & Gas Ins. Serv.
2,931
22.1
3
Clarendon America Insurance Co.
947
7.1
4
Associated Int’l Ins. Co.
676
5.0
5
American Int’l Specialty Lines
572
4.3
Industry Total
13,259
Gen Liability Prod/Comp Ops
Premium
Marketshare
1
Scottsdale Insurance Co.
$1,438
8.2%
2
General Agents Ins. Co. of America
1,165
6.6
3
Colony Insurance Co.
1,153
6.5
4
Empire Indemnity Ins. Co.
1,111
6.3
5
Burlington Insurance Co.
1,048
5.9
Industry Total
17,491
Gen Liability-OL&T/M&C
Premium
Marketshare
1
Scottsdale Insurance Co.
$26,520
11.5%
2
Steadfast Insurance Co.
12,850
5.5
3
American Equity Ins. Co.
3,398
5.5
4
Underwriters at Lloyd’s
11,506
4.9
5
General Agents Ins. Co. of America
10,200
4.4
Industry Total
230,756
This drop can be attributed to many things: mergers, acquisitions, and other consolidations; an increasing distaste for the American tort system; the slackening of underwriting standards by licensed companies during the ’90s, resulting in much surplus lines business going admitted (and thus reducing the American surplus lines pie); and tough/lengthy eligibility requirements in certain states.
This decline in non-U.S. carriers is reflected in the shifting share of the Texas surplus lines market held by the three major categories of insurers. In 1991, U.S. insurers wrote 54 percent of Texas surplus lines premium, followed by Underwriters at Lloyd’s, London with 24 percent and all other non-U.S. insurers, with 22 percent. During the mid-’90s, at the height of its financial crisis, Lloyd’s share of the market dropped as low as 12 percent, with other non-U.S. insurers falling to 11 percent.
By contrast, U.S. insurers’ market share rose to 77 percent. Today, following “Reconstruction & Renewal” and creation of Equitas, Underwriters at Lloyd’s writings have increased to 21 percent of the Texas surplus lines market. U.S. insurers hold a 71 percent share. Non-U.S. insurers now write only 8 percent of all Texas surplus lines premium, a drop of 14 percentage points in the past 10 years.
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