U.S. domiciled surplus lines insurance companies recorded modest premium growth in 2016 combined with an underwriting loss for the second consecutive year, although solid investment income helped the sector record net income of $2.2 billion, according to A.M. Best.
Sluggish growth in certain industries and the increasingly competitive landscape, saw underwriters of surplus lines in the U.S. record premium growth of 2.8% in 2016, compared with 2.5% growth a year earlier.
Much of the growth was attributable to the growth seen in non-admitted premiums underwritten at the Lloyd’s of London marketplace, and absent the expansion here, top line growth was minimal, explains A.M. Best’s Special Report, “Surplus Lines Continue to Overcome Market Pressures.”
Following on from a combined ratio of 101% for the domestic professional surplus lines insurers (DPSL) in 2015, the group fell to an underwriting loss again in 2016, with A.M. Best reporting a combined ratio of 107.8%, which is seven percentage points above the P/C industry’s combined ratio and the highest in 10 years (excluding 2012 as a result of Superstorm Sandy).
“However, the composite’s bottom-line results were notably affected by the net results of the sector’s largest single insurer, Lexington Insurance Company, which reported a net combined ratio of 130.8 in 2016. Excluding the impact of Lexington’s results, the DPSL composite would have recorded a combined ratio of just over 91%,” explains A.M. Best.
Bur despite another combined underwriting loss for the group, net investment income of $1.9 billion helped the group of insurers record a 2016 pre-tax operating profit of $1.2 billion, and a net income of $2.2 billion.
Furthermore, according to A.M. Best, the DPSL composite of insurers recorded $17.3 billion in direct premiums written in 2016, which accounted for around 41% of the total surplus marketplace.
“These solid results are due to effective strategic analysis, product diversification, underwriting discipline and an environment conducive to opportunistic mergers and acquisitions.
“A.M. Best believes the surplus lines market is financially sound at present and should remain solid for the foreseeable future; however, competitive market pressures appear to be escalating, making it more difficult for companies that lack the necessary scale, diversification or brand recognition to excel,” explains the ratings agency.
