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The surplus lines market reported an 11.2% increase in direct written premiums in 2018, which was a significant increase from the 5.8% reported in 2017, said A.M. Best Co. in a report issued Monday, which says the market segment’s outlook is stable.
The sector’s growth, to $49.89 billion, was “very impressive,” given that Lloyd’s, which accounts for more than 20% of premiums, announced a strategic business review midway through 2018 and uncertainty about its impact on individual syndicates’ appetite for surplus lines business, according to the report Surplus Lines Insurers Achieve Impressive Growth, Improve Operating Profitability.
But weather-related loss and competition resulted in an underwriting loss for surplus lines insurers for the fourth year running, with insurers reporting a 104.5% combined ratio for the year, compared with 2017’s 107.1%.
Consolidation “particularly affecting wholesaler brokers and managing general agencies on the distribution side, remains a key aspect of the reshaping of the market,” said the report by Oldwick, New Jersey-based A.M. Best.
“M&A focused on insurance intermediaries has been driven by the desire to obtain greater bandwidth to provide a wider array of products and services, along with a transformation in retail agents buying trends,” said the report.
Meanwhile, insurer consolidations “have slowed a bit during the past couple of years, although Hartford Financial Services’s 2019 acquisition of specialty insurer Navigators Group, along with the Axa Group acquisition of XL Catlin and AIG’s acquisition of Validus Holdings (both of which closed in 2018) have created organizations with an expanded breadth and presence in the marketplace,” the report said.