Surplus lines growth stalls
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For the second straight year, the surplus lines industry reported only modest growth in 2016, and little, if any, growth is expected this year, A. M. Best Co. Inc. said in a report released Tuesday.
Sluggish growth that affected exposure bases in industry sectors and increasing competitive pressure, including from admitted companies, led to a 2.8 % increase in direct premiums written in the sector in 2016 to $42.42 billion.
This compares with a 2.5% increase, to $41.26 billion, in 2015, according to the Oldwick, New Jersey-based rating agency’s report, “Surplus Lines Continue to Overcome Market Pressures,” dated Sept. 1.
“Given current market conditions, premiums are unlikely to grow much, if at all, in 2017, especially if admitted market carriers tread further and compete for more classic surplus lines risks,” says the report.
While the surplus lines market “is financially sound and should remain so for the for foreseeable future,” competitive market pressures “appear to be escalating, making it more difficult for companies that lack the necessary scale, diversification, or brand recognition to excel, especially with interest rates remaining relatively low and other economic factors presenting a challenge.”
Consolidation in the sector continues to impact market competition, says the report. “The steady push to consolidate has led to a situation in which retailers are doing business with fewer wholesalers, and wholesalers are doing business with fewer insurance companies. Whether this momentum slows down at all by the end of 2017 remains to be seen.”
“The major question is whether the surplus lines market is capable of designing and implementing coverage for the next wave of new products, as it has during the many market cycles of the past,” says the report.
“Success in this endeavor will be paramount” if the sector is to maintain an important position in the property/casualty industry, the report says.
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