Despite a 67 percent drop in net income in 2008, excess and surplus lines insurers are still financially strong, according to a rating agency report prepared for the National Association of Professional Surplus Lines Offices Ltd.
As in past years, the A.M. Best Company's 16th annual E&S report, commissioned by the Derek Hughes/NAPSLO Educational Foundation, found that the market's “solid” financial performance and solvency rates are at least on par with the admitted market. Indeed, some key indicators show the E&S segment to actually be in better shape than the total property and casualty market.
According to the report:
o The surplus lines segment had a higher percentage of rated units with ratings of “A-minus” or better. Ninety-seven percent of E&S companies were in these rating categories, while the percentage was just 58 percent for the p&c market overall.
o All E&S organizations rated by A.M. Best were “secure”–”B-plus” or better–while 97 percent of the overall p&c market had secure ratings.
o Since 1977, the failure rate for surplus lines carriers (1.02 percent) has been slightly higher than that of the overall industry (0.90 percent).
o While the failure of a number of program writers from the 1998-to-2003 period is the main contributor to higher E&S failure rates over the full 31-year span, for five consecutive years the E&S industry has recorded no financial impairments, compared to seven for the admitted market.
o In 2008, the combined ratio for 74 surplus lines companies was 93.6 versus 105 for the entire p&c industry.
o On average, surplus lines writers bested the industry's combined ratio by 11 points over five years.
o Surplus lines writers on average reported a loss ratio and loss adjustment expense ratio that was eight points lower (better) than the p&c industry's overall.
The full A.M. Best report was delivered to the annual NAPSLO conference earlier this month in Orlando. For more details, see the Oct. 19 edition of National Underwriter, or check online at www.property-casualty.com
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