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25 years of surplus lines market growth Direct premiums written by excess and surplus lines players in the US continue to grow – annual growth now eclipses that of the admitted market

DIRECT PREMIUMS (THOUSAND $)

which has long been dominated by the National Flood Insurance Program. Some state issues involving taxation have also come to the forefront, says Kelly. “We are seeking legislation in a number of states this session to eliminate tax-sharing provisions and guide reform in states that continue to require multi-state allocation and taxation for multi-state risks,” he says, pointing to North Dakota’s House Bill 1146 as a model of an ideal home state tax approach outlined by the Nonadmitted and Reinsurance Reform Act of 2010. And as for election results a year from now? “Obviously we’re all keeping our eye on the upcoming election, but the industry has been here for a long time, and we’re sustainable,” Kaufman says. “The administration or political makeup doesn’t make a long-term difference.”

33,301

Producers and surplus lines insurers Retail producers represent an important distribution channel for surplus lines insurers Wholesale agent/ broker without binding authority

Direct

0.5%

42.7%

Program manager

9.5%

Retail agent/ broker

17.7%

Wholesale agent/ broker with binding authority

29.6%

Share of premium by distributor Source: AM Best, “US Surplus Lines: 20 Year Retrospective”

32,952

32,799

31,140

15,813 10,615

9,245

9,419

8,540 6,924 6,123 1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Source: AM Best

Lines of growth Appetite is particularly rampant in certain lines. Cyber liability, which has long been a buzzword among insurance professionals, is finally starting to enjoy significant take-up rates among businesses – and not just large companies with a risk management team in place. “[Security and privacy] is a risk that is experiencing broad visibility, from public policy arenas to corporate boardrooms to our own internal underwriting community,” says Bryan

37,719

36,637

“We are seeking legislation in a number of states this session to eliminate tax-sharing provisions and guide reform ...” Brady Kelly, NAPSLO Salvatore, president of specialty products at Zurich North America. “Zurich is seeing double-digit growth in this area.” Thanks to a wave of aging and retiring Baby Boomers, long-term care is also enjoying growth, and major E&S players are increasing their appetite. “The market is stable [with] not many new entrants,” says David Bresnahan of Berkshire Hathaway. “In the healthcare continuum, it is the segment that will be the largest and fastestgrowing.” Construction – and builders’ risk in particular – is also growing after a very long lag, spurred by the Great Recession. Kaufman warns, however, that the upswing in construction has meant standard markets are taking on risks that traditionally belong to the E&S sector.

“Every few years, admitted carriers come in and take accounts that belong in E&S,” he says. “They’re writing habitational risks for standard rates, which is not sustainable in the long run.”

The future of producer involvement Producers have a place in the growth of the E&S market. While wholesale brokers without binding authority continue to dominate the distribution of surplus lines products, Kelly says retail producers will be key in helping the market expand. “We believe the value of wholesale distribution system, and the ability of retail agents and insurance buyers to rely on NAPSLO members to deliver expert, innovative and cost-effective solutions for clients, will further expand this presence.”

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6/02/2015 9:15:21 AM

Insurance Business America issue 3.01  

The magazine for America’s insurance broking and advice community.

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