US surplus lines profits tumble in 2008, but still outpace p&c industry

The U.S. surplus lines industry generated a profit in 2008 that outpaced the entire property and casualty industry, and yet its 2008 results represented a decrease of almost 67% from the previous year, reports A.M. Best Company Inc.
In a special report on U.S. surplus lines — an insurance marketplace that insures unique or hard-to-place risks — A.M. Best noted that direct premium written (DPW) declined by the largest percentage since 1988.
In 1988, DPW in the line had decreased by 4.3%. In 2008, it decreased by 6.2% (from US$37 billion in 2007 to US$34 billion in 2008).
Its combined ratio rose due to weather-related losses on natural catastrophe-exposed business, but still remained in better shape than that of the property and casualty industry at large (92.8% and 105.1%, respectively), the report says, adding that favourable reserve development reduced the combined ratio by 10.7 points.
Total investment losses of US$161.3 million were generated during the year, marking a dramatic drop from investment gains of US$2.38 billion in 2007.
Some market observers believed the average rate would begin increasing as 2009 progressed. But as of mid-year, pricing and policy terms and conditions remained relatively flat, A.M. Best says.
“Underwriting and pricing conditions remain competitive in 2009, with adequate capacity, and the inability to consistently pass on desired rate increases to policyholders impeding the upward trend in rates that most have been expecting,” the report says.