Due in large part to losses associated with Superstorm Sandy,underwriting results last year among surplus lines carriers fellbelow results of the P&C industry for the first time in morethan a decade.

A new report on the market from ratings agency A.M. Best Co. saysSandy-related losses in the surplus market are difficult to measurebut 2012 fourth-quarter loss ratios of carriers in this marketsoared 12 points to 64.8.

Net underwriting losses for the surplus industry topped $1billion.

A.M. Best's domestic professional surplus lines peer compositeshows net income was down to $1.57 billion in 2012 compared to$1.75 billion the prior year.

(A DPSL insurer is a U.S.-domiciled insurer writing 50 percentor more of direct premiums written on a non-admitted basis.)

Direct premiums written for surplus lines soared 11.8 percent to$34.80 billion.

“This growth reflects rate increases insurers took on many linesof business, as well as the impact of some business moving from thestandard lines market back into the non-admitted or surplus linesmarket,” says A.M. Best.

Typically, when rates harden standard carriers turn back to andrefocus on the risks they know best instead of writing risk on thefringe of the traditional surplus market. A.M. best says surplusinsurers have reported “lessening competitive pressure from thestandard market companies,” and the ratings agency says it believesthe low interest rate environment will play a role in shifting morebusiness to the surplus market in 2013.

Rates will continue to increase and there will be a continuedfocus on underwriting fundamentals in the standard market to offsetpressure on investment returns.

It looks as if the surplus market has “made inroads” incommercial lines premiums—historically dominated by the standardlines insurers. Surplus lines account for about 13.4 percent ofcommercial lines premiums written, which is up from 11.1 percent adecade ago.

Lloyd's continues to hold the top spot among surplus linesgroup, with an 18 percent share of the market. AIG is next with a14.5 percent share, and was the only group in the top 10 to see adecline in surplus lines direct premiums written (5.7 percent) in2012.

Lloyd's in 2012 eclipsed $6 billion of direct premiums writtenin the U.S.—a record for business.

AIG's Lexington Insurance Co. tops the list of surplus linesinsurers, with a 12.2 percent market share—more than tripling the3.6 percent share held by Nationwide's Scottsdale Insurance Co.,with 3.6 percent.