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Surplus lines market sees rise in premium volume as economy improves

Posted On: Sep. 14, 2014 12:00 AM CST

A modest surge of business in the surplus lines market reflects an improving economy.

Surplus lines premiums flowing through the 14 state stamping offices increased 4.8% in aggregate in the first half of the year, rising to $11.94 billion, while filings increased 9.5% from the first half of last year to 1.7 million so far this year.

Utah posted the largest percentage gain, 20.7%, while Idaho was flat at $39.9 million in first-half premiums. None of the stamping offices lost ground in premiums.

Florida was No. 1 in surplus lines premiums at $2.60 billion, followed by California with $2.51 billion and Texas with $2.40 billion.

The increases are a sign of an improving economy, said Phil Ballinger, executive director of the Austin, Texas-based Surplus Lines Stamping Office of Texas.

“New businesses often get their insurance in the surplus market,” he said. “There's no indication that there's a big flow to the surplus lines. There are some big jumps in the small states (and) that's really nothing. If you look at the totals, it's no hard market.”

Mr. Ballinger, whose office tracks the 14 states' surplus lines data, said it is helpful in determining whether the admitted market is hardening and pushing more insurance coverage into the surplus lines, or whether the admitted market is softer.

“Business flows out of the surplus lines market as the standard market starts writing some marginal risks,” Mr. Ballinger said “We are not seeing any outflow, No. 1. And No. 2, this is a reflection of the improving economy.”

Sylvia Bruno, executive manager of the Salt Lake City-based Surplus Line Association of Utah, said the state's $16.2 million increase in first-half premiums could be attributed to an uptick in business development in Utah and surrounding states.

“It was just an increase in business as far as policies,” which increased 5.5%, Ms. Bruno said. “The surplus lines market is on the increase, and that's fair to say with the surrounding states” as well, she added.

Utah neighbor Nevada saw a 19.4% increase in premiums and a 10.5% increase in filings.

Lynn Twaddle, executive director of the Reno, Nevada-based Nevada Surplus Lines Association, said growth in Las Vegas has boosted the state's figures, including a 10.5% increase in filings.

“Most of this is due to new construction in Las Vegas,” Ms. Twaddle said. “We also have growth in the mining industry and, in general, the state is growing.”

In Oregon, first-half 2014 premiums increased 16.8 % to $130.3 million, which shows the economy is improving, said Roger Helbling, executive director of the Portland, Oregon-based Surplus Line Association of Oregon.

“There are certain pockets that are seeing rate increases, and our economy has picked up, so that has probably helped business,” Mr. Helbling said. “There are more companies with disposable income to buy more extensive coverage, and that's a contributing factor.”

In Nevada, Ms. Twaddle said new insurance products also are supporting the increase. “The surplus market keeps reinventing itself. They come up with coverages that are needed,” she said.

Mr. Ballinger said he expects overall premiums through the 14 stamping offices to flatten for the rest of this year, and that may be a good thing.

Many in the market worried that regulations under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that incorporated the Nonadmitted and Reinsurance Reform Act would negatively affect revenue stemming from businesses with multistate operations by requiring companies with multistate operations to pay premium taxes in their headquartered state.

But fears that the rules would destabilize the industry proved to be unfounded, he said.

“Everybody took a wait-and-see approach. So far, it certainly hasn't produced the disastrous decrease that some people were forecasting,” Mr. Ballinger said.

Another plus in the midyear figures is it appears data from New York is finally stabilizing. That state, the fourth-largest stamping office in the country with $1.6 billion in premiums, has produced skewed data for several years because of late filings from one surplus underwriter.

“New York is back to normal,” Mr. Ballinger said.

Daniel Maher, executive director of the New York-based Excess Line Association of New York, said the outlook for New York is growth, mostly stemming from booming post-Superstorm Sandy reconstruction.

“There's no doubt construction will be the big mover,” Mr. Maher said.