Surplus lines underwriters outperformed the P&C insurance industry's combined ratio by an average of 10 percentage points for the 2009 to 2013 period, according to a new report by Fitch Ratings.
The report said direct premium in the U.S. excess and surplus lines insurance market direct written premiums expanded by 8%.
Moreover, premium growth is up 5% for the first half of 2014, meaning that underwriting profitability is expected to be sustained. That follows a strong 2013 performance that beat the P&C industry aggregate by almost 10 percentage points on a direct combined ratio basis.
At the same time, Fitch analysts say that premium growth is expected to continue into 2015, but profitability is likely to decline because of increased capacity, which is leading to pricing pressure. Rate increase growth has already slowed and turned negative in some segments, particularly commercial property, according to the report.
Another factor likely to lead to lower profitability is diminishing favorable loss reserve development, which reduces underwriting performance, and continued low asset yields, which adversely affects investment income, the report says.
At the same time, Fitch said that the nonadmitted or surplus lines industry constitutes only 5% of the U.S. premiums-written P&C market.
The report added that Lloyd's of London and American International Group continue to dominate the nonadmitted market. Lloyd's premiums grew 13% in 2013, while AIG premiums declined 5%.
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