Soft market pinches surplus lines market

Surplus lines insurers outperformed the property and casualty industry in underwriting and operating performance in 2007, but the softening market and more aggressive competition portend deterioration in profitability for this sector (absent a catastrophe that curtails the incursion of standard market insurers), reports A.M. Best.
According to the rating agency’s special report, ‘Surplus Lines Results Remain Strong, As Competitors Grab at Market Share,’ after-tax return on equity for the surplus lines industry slipped slightly to 12.4% in 2007 from 15.05% at year-end 2006.
“The impact of the softening market was evident in the 8.7% drop in net premiums written in 2007 for professional surplus lines insurers,” the report says.
“Merger and acquisition activity has been high among surplus lines companies and distribution through mid-year 2008, and is expected to continue over the near term.”
For the fourth consecutive year, in 2007, surplus lines recorded no financial impairments, compared with the four impairments for the admitted property and casualty industry, the report adds.
The top three surplus lines groups were unchanged from 2006. They include: American International Group, Lloyd’s and Zurich Financial Service Group.