Despite a 67 percent drop in net income in 2008, excess andsurplus lines insurers are still financially strong, according to arating agency report prepared for the National Association ofProfessional Surplus Lines Offices Ltd.

As in past years, the A.M. Best Company's 16th annual E&Sreport, commissioned by the Derek Hughes/NAPSLO EducationalFoundation, found that the market's “solid” financial performanceand solvency rates are at least on par with the admitted market.Indeed, some key indicators show the E&S segment to actually bein better shape than the total property and casualtymarket.

According to the report:

o The surplus lines segment had a higher percentage of ratedunits with ratings of “A-minus” or better. Ninety-seven percent ofE&S companies were in these rating categories, while thepercentage was just 58 percent for the p&c market overall.

o All E&S organizations rated by A.M. Best were“secure”–”B-plus” or better–while 97 percent of the overall p&cmarket had secure ratings.

o Since 1977, the failure rate for surplus lines carriers (1.02percent) has been slightly higher than that of the overall industry(0.90 percent).

o While the failure of a number of program writers from the1998-to-2003 period is the main contributor to higher E&Sfailure rates over the full 31-year span, for five consecutiveyears the E&S industry has recorded no financial impairments,compared to seven for the admitted market.

o In 2008, the combined ratio for 74 surplus lines companies was93.6 versus 105 for the entire p&c industry.

o On average, surplus lines writers bested the industry'scombined ratio by 11 points over five years.

o Surplus lines writers on average reported a loss ratio andloss adjustment expense ratio that was eight points lower (better)than the p&c industry's overall.

The full A.M. Best report was delivered to the annual NAPSLOconference earlier this month in Orlando. For more details, see theOct. 19 edition of National Underwriter, or check onlineat www.property-casualty.com