Florida's excess and surplus (E&S) lines industry emerged relatively unscathed from the 2010 legislative session. There was some concern that special interest groups might attempt to challenge the legislation that resolved the fallout from the Essex v. Zota decision the previous year, but no such challenge was mounted. The veto by Gov. Charlie Crist of the omnibus property bill, which posed a potential problem for E&S by expanding the definition of MGAs, ensured the status quo on that front.
With regulatory issues moot for the moment, attention is drawn to premium growth and competition, both of which have been experiencing some unusual and notable trends.
P&C Lines
Comparing the past three full years' written premium and policy count results (2007-2009), most of the premiums in Florida's top 10 E&S coverage code categories deviated by only a few percentage points. Commercial property traditionally generates the most total written premium; the past year was no different, coming in at just over $1.7 billion. What is different, however, is the trend over the past three years in total premium and total policy count — they are going in opposite directions.
From 2007 to 2009, commercial property surplus lines premium dropped a bit more than five percent, from $1.799 billion to $1.703 billion. That $700 million premium drop is significant. The reality for agents, brokers and carriers is that they wrote almost four percent more policies (about 3,800), but generated five percent less premium.
Significant premium losses occurred in some other coverage codes, based on percentages of premium change. Commercial general liability took a large hit in 2009, dropping 16 percent, from $537 million to $450 million. That is in addition to a 20-percent reduction in written premium from 2007 to 2008. Homeowners' (HO-3) premiums went from $205 million to $123.8 million, a drop of 40 percent.
While the premium deficits are troubling, most of the change is explained by what is happening on the standard side of the market. "We're still seeing the admitted markets and Citizens Property Insurance Corp. remaining very competitive on all areas and in particular on the homeowners' side of the business," said Bruce Bowers, profit center leader for National Risk Solutions, a division of Hull & Company, and president of the Florida Surplus Lines Association. The consensus in the industry is that there is still plenty of capacity on all lines of business, so the competition is likely to continue.
Professional, E&O Lines
A review of Florida E&S written premium for the past several years showed that both miscellaneous E&O and miscellaneous medical professionals have resided in the top 10 coverage codes for premium volume since 2007. The coverage codes generated $60 million each in premium in 2009, and observers expect more opportunities to follow.
Several E&O classes are showing signs of moving even more heavily to the surplus lines side of the ledger. Title agents continue to be a difficult class, with a very limited number of carriers writing the coverage, and fewer still if claims are involved or if anything is considered to be out of the ordinary. Only a limited number of admitted carriers will look at these accounts.
Nursing homes remain a very difficult class, with many carriers choosing not to write them. Allied medical has not grown to the degree that most writing the coverage had hoped.
We can expect more premium in this sector as the population ages and as more carriers look for areas into which they can expand.
Surplus Lines Agent Numbers Increase Faster Than Premium
Ashlee Weber of the Florida Surplus Lines Service Office (FSLSO) reported that the number of new surplus lines agents has increased significantly in the past several years. That is a testament to the total premium available in the state of Florida, notwithstanding the increased competition in the market and some areas of shrinking premiums.
In 2004, there were 65 new surplus lines agents, 57 of them resident agents and eight non-resident agents. Following a significant storm season in 2004, those numbers increased by 70 percent in 2005 — new resident agents totaled 72 and new non-resident agents totaled 42 (non-resident numbers increased five-fold over the prior year). The ratio of new resident and new non-resident agents completely reversed in 2009. That year brought 121 new agents, 43 of whom were resident, 78 non-resident.
While more agents fighting for less premium does not seem like an attractive formula, it is not deterring even more new surplus lines agents from entering the sunshine state.
From 2004 to today, there have been a total of 703 newly licensed surplus lines agents — 354 resident and 349 non-resident.
In the second quarter of this year alone, FSLSO reported that 11 resident and 19 non-resident agents have come aboard.
The continued influx brings into question whether so many surplus lines entities can survive in a state where their numbers are growing faster than the premium they are trying to write. It will be interesting to see what develops the rest of the year and in 2011.
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