Surplus Lines Rate Hikes to Slow As Competition Grows
By: Mark Hollmer (Insurance Journal) September 2014
Two insurance rating entities see slowing rate increases for the surplus lines segment in the coming months as competition grows.
Moody’s Investors Service said that the U.S. excess and surplus lines sector is experiencing growth and strong profitability, thanks to rate increases, an improving economy and the sector’s limited appetite to keep on risks at inadequate prices. Moody’s, as detailed in its report “U.S. Excess and Surplus Sector Profile,” expects those rates to rise, but at a slower pace on the casualty side. Commercial property rates will keep declining as capacity and competition both increase, the report concluded.
A.M. Best offered similar perspective but with a longer look back. The company’s latest Best Special Report notes that surplus lines insurers experienced a big rebound in profitability in 2013 because of relatively light catastrophe losses compared to the previous year, more profitable underwriting and big investment gains. The sector also continues to grow with a focus on “unique and creative products” designed in cooperation with both brokers and insureds, according to the report.
For now, A.M. Best said, the surplus lines insurance market is stable, but profit markets should shrink “in the near term” as average rate increases dip on various coverage lines and competition grows. A.M. Best said that the surplus lines could see some impact in the U.S. through a number of pieces of pending legislation, including a hoped-for renewal of the Terrorism Risk Insurance Act, which offers federal reinsurance coverage to help protect businesses in the aftermath of a terrorist attack. Another measure, the Flood Insurance Market Parity and Modernization Act of 2014, would make sure that surplus lines insurers can offer private market products to consumers that need specialized flood coverage.
Moody’s is more optimistic about excess and surplus lines trends, noting that these companies, lacking rate and form regulation, will be able to “navigate the property and casualty insurance cycle with strong balance sheets, despite challenges from catastrophe losses and low interest rates.”
Enrico Leo, a Moody’s vice president and report author, said in a statement that the sector’s profitability will likely “remain solid, given that ongoing casualty rate increases are at least keeping pace with loss ratio trends,” assuming no large catastrophes take place.
Moody’s predicted in its report announcement that the flow of casualty business into the E&S market will slow down , “as standard commercial insurers look to retain their existing business and expand their risk appetite for new business – but not necessarily higher risk E&S lines – over the next 12 months.”
Moody’s said that positive E&S market conditions have led many insurers to expand in the space, either through acquisitions, new underwriting teams or Lloyd’s syndicates. Merger and acquisition (M&A) activity could be on the horizon, Moody’s said, because the E&S and specialty business remains relatively attractive. Big pressure in the reinsurance sector from alternative capital could also be an M&A driver, it said.
Categories
- Benefits Resources
- Bonding
- BOP
- Business Insurance
- Commercial Auto
- Commercial Property
- Company News
- Construction
- Crime Insurance
- Cyber Insurance
- Directors & Officers
- Employee Benefits
- Employment Practice Liability Insurance
- Entertainment
- General Liability
- Health Insurance
- Healthcare
- Healthcare Reform
- Homeowners Insurance
- Hospitality
- Manufacturing
- Medical Malpractice
- Mining & Energy
- Nightclubs
- Personal Auto
- Personal Insurance
- Professional
- Restaurants
- Retail & Wholesale
- Risk Management Resources
- Safety Topics
- SBA Bonds
- Security
- Seminars
- Technology
- Tourism
- Transportation
- Uncategorized
- Workers Compensation
Archives
- May 2021
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- November 2018
- September 2018
- August 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- February 2013
- November 2011
- October 2011
- September 2011
- July 2011
- June 2011
- March 2011
- November 2010
- October 2010
- September 2010
- April 2010
- February 2010
- November 2009
- October 2009
- November 2008
- August 2008