The Florida surplus lines market continues to battle many outside factors, but there are signs that at least the decline in premiums experienced over the last several years has slowed.

Gary Pullen, executive director of the Florida Surplus Lines Service Office (FSLSO), said that when comparing the first six months of 2010 to the same time period in 2009, the state actually saw an increase in premium of 2.5 percent.

That's the good news, considering premiums in the market declined 6 percent in 2009--still a slower decline than the 9.1 percent decrease in premiums felt in 2008.

However, surplus lines carriers continue to wage premium battles against each other, especially with increased capacity in the admitted market, Mr. Pullen said.

"While Florida has been fortunate not to have any hurricane action since 2006, that lack of catastrophe losses provides for market conditions more suitable for admitted carriers" Mr. Pullen explained.

"The risk of loss from hurricanes continues to present risk for surplus lines insurers," he added. "Additionally, the lack of economic growth creates extreme competitive pressures for the standard and surplus lines markets."

Policy counts have remained relatively flat but the surplus homeowners insurance market, with more availability offered by standard carriers and the state-run Citizens Property Insurance Corporation, has seen its policy count cut in half. Mr. Pullen said in 2005 the FSLSO processed about 112,000 policies written in the homeowners market compared with about 53,000 policies in 2009.

Though premiums reported to the FSLSO went from $4.3 billion in 2008 to about $4 billion in 2009, the state became the leading writer of surplus lines business in the U.S. The market paid more than $180 million in taxes to Florida in 2009.

Surplus lines are likely to see more competition, as a recently-adopted bill (SB2176) deregulated certain commercial lines of insurance in Florida. Mr. Pullen said it will create competition "because it provides standard insurers the opportunity to write risks at rates that otherwise may not receive regulatory approval."

Commercial surplus lines premiums dropped from about $1.8 billion in 2007 to about $1.7 billion in 2009, according to Tim Hoelle, vice president of Florida operations for wholesale insurance broker W.N. Tuscano Agency.

It is difficult for the excess & surplus lines market to compete because of "government meddling" in Florida, according to Marla Donovan, vice president of product development at insurance wholesaler Burns & Wilcox. "Because of market tampering, the free market is not allowed to operate," Ms. Donovan said.

Mr. Pullen said the political environment in Florida affects the market in terms of how decisions, such as suppressing rates or allowing the residual market to compete with the private market, are "perceived to disrupt normal market activities...which makes carriers look for alternative markets in which to invest capital and receive more favorable returns."

Legislation passed two years ago now allows Citizens, the supposed last-resort insurer, to gradually increase rates in an effort to become actuarially sound. However, these increases are limited to 10 percent per policyholder.

There have been no new surplus lines insurers entering the market, Mr. Pullen said. Since the start of the year, Universal Casualty Company has left the market, he added.

There has been some controversy in Florida regarding managing general agents in the admitted market. Many are affiliated with the insurers for which they place business. Some insurers have been reprimanded by the Office of Insurance Regulation (OIR), as insurance executives were found to be making money via the affiliated MGAs while the insurer reported a loss. However, "[m]ost MGAs operating in the surplus lines market are not owned or controlled by the principals of the insurers for which they are placing and managing business," Mr. Pullen said.

The FSLSO has been ordered by the OIR to collect on behalf of the Florida Hurricane Catastrophe Fund (FHCF) an emergency assessment of 1.3 percent on applicable surplus lines policies issued or renewed beginning Jan. 1, 2011. This is an increase from a 1 percent assessment in place since the start of January 2007.

According to the order, the State Board of Administration, which oversees the FHCF, has determined that revenue collected by the fund is "insufficient to fund obligations, costs and expenses" related to the 2005 hurricane season, which brought hurricanes Dennis, Katrina, Rita and Wilma to Florida.

All property and casualty policies will be subject to the assessment except medical malpractice, workers compensation, accident and health and national flood insurance, according to the FSLSO.

The surplus lines policyholders paid more than $40 million to the FHCF in assessments in 2008 alone, according to Irvin "Skip" Wolf, senior vice president of Regional Excess Underwriters LLC, a subsidiary or W.R. Berkley Corp. Since 2005 surplus lines policyholders have been assessed more than $204 million to cover Citizens Property Insurance Corp. policy obligations, he added.

Special Reports /

Premium Drop Slows For Florida Surplus Lines But Stiff Competition Remains

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