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

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

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

A.M. Best's domestic professional surplus lines peer composite shows 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 percent or 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 lines of business, as well as the impact of some business moving from the standard lines market back into the non-admitted or surplus lines market,” says A.M. Best.

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

Rates will continue to increase and there will be a continued focus on underwriting fundamentals in the standard market to offset pressure on investment returns.

It looks as if the surplus market has “made inroads” in commercial lines premiums—historically dominated by the standard lines insurers. Surplus lines account for about 13.4 percent of commercial lines premiums written, which is up from 11.1 percent a decade ago.

Lloyd's continues to hold the top spot among surplus lines group, with an 18 percent share of the market. AIG is next with a 14.5 percent share, and was the only group in the top 10 to see a decline in surplus lines direct premiums written (5.7 percent) in 2012.

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

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

Special Reports /

Thanks to Sandy, Surplus Underwriting Results Fall Below P&C Peers

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