Surplus Market Snapshot: Business Rides the Market Tides

Some Lines of Business Down But Not All; More Large Firms Going Directly to Foreign Insurers

The people who run the Florida Surplus Lines Service Office are smack dab in the middle of the action and can see better than anyone what is going on in the Florida surplus lines market.

The FSLSO collects reports on every business transaction from surplus lines carriers and agents on a regular basis. These reports are fed into a searchable database that presents an ongoing picture of what the market looks like, which coverages are selling and even who is writing them. The database goes back to 2000.

In 1998 — its first year of operation — the FSLSO documented $800 million in premium. In recent years, the annual premium has been more than five times that.

“The Florida surplus lines business is fulfilling the designation as it was intended — a public line of last resort,” FSLSO Executive Director Gary Pullen says with confidence.

For a market of last resort, the Florida surplus lines market is very popular. From 2004 through 2007, the number of surplus lines policies and premiums totals were steadily rising.

This year, however, the overall numbers are falling. According to the FSLSO online market reports, the surplus lines market has transacted about $2.1 billion in business and 339,000 policies through the end of the second quarter this year. Those numbers compare to about $2.7 billion and 397,000 for the some quarters in 2007.

Pullen has at his fingertips even more current statistics of about $2.5 billion premium for the 2008 first and second quarter versus $2.7 billion for these quarters in 2007.

The decline this year is not a surprise to Pullen and his associates at FSLSO who know that the surplus lines market balloons and shrinks from quarter to quarter and year to year depending on what the admitted market is doing. Increased soft market competition always affects the surplus lines market.

“We were expecting it,” Pullen said. “We thought we’d see about a 12 percent decrease and it’s pretty close to that. Prices are coming down — mostly in the commercial risk area.”

Activity Varies by Coverage

A snapshot taken at the end of the second quarter 2008 shows that while business is down overall, the activity really varies by coverage.

Commercial property and liability business is up for the first two quarters of 2008, while homeowners and commercial packages business is down.

Pullen offered a comparison of results through the second quarters of 2007 and 2008 for the top four most popular coverages in the surplus lines market:

Commercial General Liability

• 2008: 70,000 policies, $306 million
• 2007: 39,000 policies, $205 million

Commercial Property

• 2008: 52,500 policies, $1.1 billion
• 2007: 28,700 policies, $925 million

Commercial Package Policies

• 2008: 17,000 policies, $71 million
• 2007: 18,500 policies, $82.5 million

Homeowners (3)

• 2008: 15,700 policies, $41 million
• 2007: 21,000 policies, $65 million

IPC Market Surge

There is one area of the Florida surplus lines market where Pullen has seen growth this year. It’s in what’s called independently procured coverages or direct corporate transactions.

“Where we’ve seen an increase is in the independently procured coverage — large corporate risks for entities that go directly to surplus lines companies rather than through independent agents,” Pullen noted.

Independently procured coverage doesn’t have to be from Florida’s list of eligible surplus lines carriers. The corporate entities are still obligated to pay the FSLSO service fee and the state premium tax however.

Pullen cited Disney and Ryder Trucks as two examples of corporations that take advantage of the option to buy coverage outside the state regulated surplus lines process.

While independently procured coverage increased by $73 million during the first two quarters of 2008 compared to the same timeframe in 2007, independent agent business was down $267 million.

The figures indicate larger corporate entities are having better success in finding the coverage they’re seeking or finding more coverage options, Pullen said. More than likely they are procuring coverage through alien or foreign carriers, he added.

Florida Surplus Lines Top 25 Coverages by Policy Count

Source: The Florida Surplus Lines Service Office as of 7/1/2008.

Topics Florida Excess Surplus Property Homeowners