First-Half 2010 E&S Premiums Decline

Premiums written by the U.S. excess and surplus lines market fell nearly 5 percent to $11.5 billion in the first half of 2010, according to a report prepared by Highline Data exclusively for National Underwriter.

If a harder insurance market or some economic improvements do not come together to drive E&S premiums up dramatically in the second half of this year, the segment will suffer a record-setting four straight years of premium declines.

According to Highline Data (www.highlinedata.com)–a data affiliate of The National Underwriter Company–comparable premiums for the U.S. E&S market totaled $12.1 billion for the first six months of 2009.

The single-digit premium decline was slightly less than the 7.5 percent full-year drop for E&S carriers reported for 2009.(See related article, see http://bit.ly/cVWsoZ.)

For the six-month period, however, E&S insurers fared worse than the property and casualty industry overall, which managed flat growth, according to the latest figures released jointly by Insurance Services Office, the Insurance Information Institute and the Property Casualty Insurers Association of America. (See http://bit.ly/aALMEq for details.)

The latest E&S numbers do not provide any insight into the combination of price declines and exposure changes that contributed to the 5 percent tumble.

Highline Data also compiled a list of the top-50 E&S groups, ranked by direct written E&S premiums, revealing that only 18 of the 50 managed to record premium growth in the first half of this year.

Continuing a trend that was evident based on Highline Data's prior report for the full-year 2009, published by NU in May, several Bermuda-based organizations with U.S. E&S operations vaulted up the ranking with the largest premium jumps, including Bermuda-based Ironshore Group with its $237 million total pushing the group up from the 25th spot based on first-half 2009 premiums.

For all of 2009, Ironshore's U.S. E&S premiums totaled $312 million.

Two other Bermuda-based firms–Torus Insurance Group and Aspen Insurance Holdings–leapt into the top 50 but landed still well shy of the $120 million mark that separates the top-25 groups from the rest of the pack.

On U.S. shores, Cincinnati Financial also moved into the top 50 for the first time, with $30 million of E&S direct premiums landing it in the 49th spot.

Chartis suffered the biggest dollar drop ($387 million), but the group–and its Lexington Insurance Company operation–still garnered top spots on Highline's group and the individual company rankings.

Chartis (formerly American International Group) and Lloyd's have traditionally occupied the first and second spots on a separate ranking that includes alien insurers published by Oldwick, N.J.-based A.M. Best. Best positioned Lloyd's behind Chartis from 2002 to 2009–with Lloyd's taking the top spot in 2000 and 2001 but falling behind Chartis ever since.

(The analysis excludes Lloyd's, which writes this business through licensed surplus lines brokers rather than U.S. companies.)

Lloyd's did not have U.S. E&S premium tallies available to share with NU in time for this report. But separately, Lloyd's has indicated that U.S. coverholder business–underwritten by U.S. managing general agents on behalf of Lloyd's–has become a priority. (See related article in the Sept. 27 edition of NU's E&S Extra at http://bit.ly/bIu88x.)

Last month, Lloyd's reported that gross premiums written globally for the first six months remained relatively flat–rising just 0.2 percent over first-half 2009. Lloyd's also indicated that 45 percent of the total came from the U.S. and Canadian markets, which was the same percentage reported in 2009.

Since some of this North American premium is reinsurance-related, it remains unclear whether U.S. E&S insurance premiums written by Lloyd's in 2010 will eclipse the Chartis total.

The A.M. Best analysis–commissioned by the Derek Hughes/NAPSLO Educational Foundation and published last month in advance of NAPSLO's annual meeting–reported three consecutive years of premium declines for writers of U.S. E&S business in total, excluding Lloyd's and other true aliens.

According to historical A.M. Best data dating back to 1988, U.S. E&S premiums haven't dropped for two consecutive years since the late 1980s, and the Best figures show no prior three-year slide.

Historical records for U.S.-domiciled companies going back further–to 1971–maintained at National Underwriter (based on articles authored by NAPSLO members in the late 1990s), indicate that a three-year slide occurred in 1981, 1982 and 1983, when surplus lines premiums fell 2.3 percent, 2.6 percent and 3.6 percent, respectively.

According to A.M. Best's latest report, the magnitude of the more recent trio of surplus premium drops was much larger, with the numbers falling 5.9 percent for domestic professionals in 2007, 11.1 percent in 2008 and then 7.2 percent in 2009.

(Editor's Note: Highline's indicated full-year premium drop of 7.5 percent for 2009 is comparable to the A.M. Best figures for domestic professionals and domestic specialty companies added together. Best distinguishes between “professionals” and “specialty companies” based on the percent of nonadmitted business to the total for the company. Those with more than 50 percent are defined as “professional” companies by the rating agency analysts.)

ABOUT THE DATA

Direct written premium data for the rankings accompanying this article is taken from Schedule T of quarterly statutory financial statements filed with U.S. insurance regulators.

For each individual U.S. insurance company that filed the schedule by mid-September, Highline summed premiums in states where the carrier's active status is shown as “E” denoting that a carrier is eligible or approved to write surplus lines or nonadmitted business in the state.

The column labeled “Percent Growth” is an indication of organic premium growth. In other words, first-half 2010 premiums for all insurers that were part of a group in first-half 2009 were used to calculate growth figures (excluding those divested in 2010 and including those acquired in 2010).