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Surplus lines stamping offices' higher premium volume could be temporary


The latest round of data from the 14 U.S. surplus lines stamping offices looks as if it shows signs of a hardening market, but industry leaders say it is too soon to tell and that high-volume individual filings could be the cause of temporary, high increases in premiums.

“Here we are seeing some increases 20%-plus in some states, but filings not so much,” said Phil Ballinger, executive director of the Austin, Texas-based Surplus Lines Stamping Office of Texas, which compiles data collected from all 14 U.S. stamping offices. “There are small increases, but not enough. This is not the indication of a true hard market.”

Twice a year, the 14 stamping offices collect and examine surplus lines filings to ensure compliance with state laws and regulations. They also ensure that surplus lines taxes and stamping fees are properly calculated and collected. The data can show whether the admitted market is hardening, pushing more policies into the surplus lines, or conversely.

Overall, premiums processed by the U.S. stamping offices through June 2013 totaled $11.4 billion, an increase of 21.2% compared with the first half of 2012. Filings also increased, though slightly: 4.1% to approximately 1.6 million.

Experts say one trend that could explain the increase in premiums but not in filings is a relatively new regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act. As part of the Nonadmitted and Reinsurance Reform Act, companies with multistate offices are required to pay premium tax in the states where they are headquartered — a factor that caused increases in many larger states in 2012 and likewise in 2013.

But there's more behind the numbers, Mr. Ballinger said. Figures from New York state — 85.4% increase in premiums and 5.1% increase in filings so far this year — have skewed the data slightly because that region is a free trade zone, where policies that in other states would go to the admitted insurance market tend to hit the surplus lines sector, he said.

One example, he said, are construction policies.

“Take New York out, and you have a 15% increase in premium (for the remaining 13 stamping offices), and that's more meaningful,” he said.


Dan Maher, New York-based executive director of the Excess Line Association of New York, said New York's figures also are the result of the higher-amount, multiyear filings that tend to occur there. For example, he said, excess and surplus premiums can be substantially affected by large projects such as the rebuilding of the World Trade Center in New York City. Such projects are booked and filed in the year written, not in annual premium installments, according to Mr. Maher. Additionally, premiums and return premiums filed more than a year late have caused significant fluctuations, particularly in 2011 and 2012.

Construction in particular always has been a tight market, and rebuilding after Superstorm Sandy has contributed to the increase in New York, Mr. Maher said. Additionally, New York is seeing a hardening market in its coastal areas, mostly due to recent hurricane models, he said. “The new models are changing how much capacity a carrier would put in a coastal area,” he said.

Mr. Ballinger said states such as Florida and Texas likely would always see increases in premiums filed due to the catastrophe risk. Florida's increase in 2013 — up 10.2% to $2.6 billion from $2.4 billion in 2012 — is mild compared with Texas, which saw a 23.8% increase to $2.4 billion from $1.9 billion, he said.

“These are clearly related to” catastrophes, Mr. Ballinger said. “In Florida, what goes admitted in many states goes to the surplus lines.”

Another state that saw a massive increase in premiums filed is Idaho, whose financials shot up 63.5% to $39.9 million in 2013 from $24.4 million in 2012.

However, Wendy Tippetts, Boise, Idaho-based manager of the Surplus Line Association of Idaho Inc., said that despite the drastic increase, filings are relatively flat with a small jump of 3.4%.

Mr. Ballinger added that Idaho's numbers are low relative to figures from higher-volume offices such as that in Texas, Florida and California, where premiums filed almost always hit the billions. “Some of the big increases are coming from the tiny states,” he said.

Similar to Idaho, small offices such as those in Pennsylvania, Oregon and Minnesota saw premium increases ranging between 19.9% and 26.7%.

Not all states are registering increases, however. Washington saw the largest decrease, with a 9.9% decrease to $303.5 million in 2013.