Non-U.S. organizations vaulted up a premium ranking of writers of excess and surplus lines insurance in the United States in 2009, although industrywide U.S. E&S premiums shrank for the third straight year.

Bermuda-based Ironshore Group was the biggest sprinter–climbing 35 spots to 20th place on a ranking of groups based on their direct U.S. E&S premium writings in 2009, with its $312 million total pushing the group up from the 55th spot it occupied in 2008.

Overall, U.S. E&S premiums fell 7.5 percent in 2009. Among the top-25 groups, however, six bucked the overall trend, reporting premium jumps. All six contrarians, like Ironshore, hail from organizations based beyond U.S. shores.

Four of these entities–Australia's QBE Insurance Group, along with Bermuda's Ironshore, Endurance Group and Max Specialty Group–recorded increases of 35 percent or more, while Germany's Munich Re Group and Bermuda's Allied World recorded jumps of 8 percent and 5 percent, respectively.

The rankings and trends were revealed on group and carrier lists compiled by Highline Data (www.highlinedata.com), part of The National Underwriter Company.

Direct written premium data for the rankings accompanying this article is taken from Schedule T of statutory financial statements filed with U.S. insurance regulators. For each individual U.S. insurance company that filed the schedule by early April, Highline summed up premiums in states where the carrier's active status is shown as “E,” denoting a carrier is eligible or approved to write surplus lines or nonadmitted business in the state.

The analysis excludes Lloyd's, which writes this business through licensed surplus lines brokers rather than U.S. companies. But more than a dozen other non-U.S. enterprises–including Bermuda's Ironshore, Catlin and Aspen; Germany's Munich; and Paris-based SCOR–now rank among the top-50 U.S. E&S groups.

These seeming “foreigners” or “aliens” actually transact U.S. E&S business through U.S. carriers–the top 50 of which are ranked on a separate chart (on page 16).

Munich, for example, writes U.S. E&S business through Princeton Excess & Surplus in New Jersey, as well as several Cincinnati-based American Modern companies acquired in Munich Re's deal for The Midland Company in 2008.

Technically, in insurance industry lingo, all carriers that went into creating the two rankings could be dubbed “foreign”–a term used to describe a U.S. company transacting business in a state outside the one in which it is licensed. The term “alien” insurer describes a non-U.S. entity, such as Lloyd's, chartered on foreign soil but transacting business within the United States.

OTHERS FALL

As QBE Insurance Group moved up from 35th place in 2008 to 10th place in 2009, Berkshire Hathaway Group fell out of the top 10, dropping to 12th place with a 28 percent decline in direct E&S premiums.

Contributors to Berkshire's fall were Omaha, Neb.-based National Fire & Marine Insurance Company and Stamford, Conn-based General Star Indemnity, to a lesser extent. Gen Star's premium decline pushed the individual company off the list to top-50 individual E&S carriers, into the 51st spot.

While only groups headquartered outside the United States recorded double-digit percentage jumps in E&S premiums in 2009, you didn't have to be a U.S. carrier to suffer a double-digit decline. Eleven of the top-20 groups had double-digit percentage drops, including non-U.S. groups Zurich, Argo, XL and Allianz, which joined U.S. groups such as Chartis, Markel and W.R. Berkley on a downward ride.

Chartis suffered the biggest dollar drop–$1.1 billion–but the group, and its Lexington Insurance Company operation, still garnered top spots on Highline's group- and individual company rankings.

Lexington's writings dropped 10.5 percent to $5.3 billion, while Chartis Specialty recorded a 34.3 percent decline to $788.2 million in 2009 from $1.2 billion a year earlier. Smaller Chartis operations–Chartis Select Insurance Company, Illinois National Insurance and Landmark Insurance Company–suffered bigger percentage dips.

Chartis (formerly known as American International Group) and Lloyd's have traditionally occupied the first and second spots on a separate ranking that includes alien insurers published by Oldwick, N.J.-based A.M. Best Company. Best positioned Lloyd's behind Chartis from 2003 to 2008–with Lloyd's taking the top spot in 2000 and 2001 but falling behind Chartis in Best's latest published ranking based on 2008 U.S. E&S premiums of $6.1 billion.

Separately, Lloyd's has reported a 22 percent increase in gross premiums written globally for 2009. And while Lloyd's also indicated that 45 percent of the total came from the U.S. and Canadian markets (up from 40 percent in 2008), since some of this is reinsurance premium, it is unclear whether U.S. E&S premiums written by Lloyd's in 2009 eclipsed the Chartis total.

The A.M. Best report–commissioned by the Derek Hughes/NAPSLO Educational Foundation and published in September 2009 in advance of the annual meeting of the National Association of Professional Surplus Lines Offices–reported two consecutive years of premium declines among writers of U.S. E&S business in total, excluding Lloyd's and other true aliens.

According to Best, U.S. E&S premiums (excluding aliens) fell 5.9 percent in 2007 to $27.7 billion from $29.4 billion, and tumbled another 11 percent in 2008.

With Highline Data indicating another 7.5 percent drop in 2009–to $23.1 billion, from roughly $25 billion in 2008–the latest figure marks the third consecutive decline.

According to historical A.M. Best data, U.S. E&S premiums haven't dropped for two consecutive years since the late 1980s, and the Best figures–dating back to 1988–show no prior three-year slide.

2010: THE FINAL STRAW?

Experts agree that intense competition and a down economy contributed to the premium drop in 2009, and executives of publicly traded groups that have large U.S. E&S insurance operations said market conditions have actually worsened in the E&S world in 2010 so far.

Speaking on first-quarter earnings conference calls, executives of fifth-ranked Markel and sixth-ranked W.R. Berkley suggested the implication is that an improved–that is, harder–market is not far off.

“We are seeing specialty players who have gotten to the point [where] they can't find a way to give any more on price, so they have decided to cave on terms and conditions,” said Rob Berkley, president and chief operating officer of Greenwich, Conn.-based W.R. Berkley, reporting that he saw this erosion within the E&S market “come somewhat out of the blue in Q1 2010.”

He explained that looser terms have been offered by standard or admitted insurers for an extended period of time. “That just happens naturally” as business migrates from the nonadmitted market, he said, stressing that what is new is the loosening of terms and conditions by E&S competitors.

“Certainly it is not something I saw in a significant way in 2009,” he said.

“Historically, this has been a sign of the last shoe to drop–the final straw…leading us to believe that the change in behavior is not in the too-distant future,” he said.

“Pressure in the marketplace is building every day. We remain focused on maintaining the appropriate level of underwriting discipline, and we wait patiently for the inevitable change,” he said, reporting that gross premiums for specialty business declined 6 percent for W.R. Berkley during the first quarter.

At Markel–where E&S premiums dipped 11 percent and total specialty (E&S and admitted) premiums fell 7 percent–Vice Chair Tony Markel delivered these thoughts on the economy and unabated market competition: “There seems to be virtually no discernible economic rebound” in the middle-market arena where Markel focuses its business. “That is coupled, still, with a feeding frenzy created by new hungry entrants into most specialty niches…Every new and renewal piece of business continues to be a real struggle and a real fight.”

Still, Mr. Markel and other executives for the Richmond, Va.-based insurer said business in March was flat rather than declining, and early indications for April were showing an uptick in business. They attributed the improvements to marketing efforts, a recent restructuring to a regional model, and to a broadening of some previously restrictive terms on small binding authority business.

Describing the broader terms as enhancements that essentially removed antiquated provisions and cleaned up the policies to make them less confusing to E&S brokers, Mr. Markel said the changes “dramatically increased [Markel's] traction with wholesaler partners with very little [actual] retreat on underwriting terms and conditions.”

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Foreign Firms Post Biggest U.S. Gains In Shrinking E&S Insurance Market

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