Lloyd’s has got surplus talent
26 November 2007
If your business happens to be manufacturing fireworks in the state of Nevada, who do you go to for insurance?
When licensed insurers in the US decline to write business they consider too risky or too complicated, buyers turn to what is called the surplus lines (SL) market – an area where Lloyd’s underwriters have a strong presence.
According to a new report from A.M. Best, Lloyd’s is the second biggest writer of US surplus lines insurance. In 2006, Lloyd’s underwriters wrote surplus lines premiums worth US$6 billion – or 16% of the market. (In 2006, surplus lines represented 14% of the total US commercial lines market, or US$39 billion.)
Coverage can be sought from the surplus lines market by companies that are eligible to write business in the relevant state
The required coverage may not fit standard insurance forms or it may require higher limits than those offered by the standard market. Or the coverage may relate to unique situations, such as one day events, parades or concerts.
To write surplus lines business in the US insurers, including Lloyd’s underwriters, need to be authorised in the relevant state although the regulation of surplus line insurers is different to locally admitted insurers. Because surplus lines insurers are there to provide non-standard sources of cover for sophisticated purchasers surplus lines insurers have greater freedom to provide cover on different terms and rates: an environment that Lloyd’s thrives in.
“By definition, Lloyd's is not a ‘standard market' ", says Alexandra Glickman, managing director and practice leader of Gallagher Real Estate and Hospitality Services, part of Arthur J. Gallagher Risk Management Services. “The underwriters have always been willing and able to accept risks that the US markets have shied away from.”
Another reason Lloyd’s plays such a key role, she says, is that the structure of
Lloyd's allows many small lines to come together to create a large line of capacity. “In the US markets, insurers put up larger limits, thus they may shy away from the more difficult risks,” she says.
Lloyd’s insurer Catlin has been writing US surplus lines business for over 20 years. “The surplus lines market fits well with Catlin’s core strategy - understanding and writing difficult to place risks through experienced, knowledgeable and disciplined underwriters,” says Nick Greggains, chief underwriting officer for insurance at Catlin US, based in Atlanta.
Like Catlin, longstanding surplus lines insurer Beazley sees a wide range of SL risks, especially since it too established a local US presence. "Surplus lines business is well suited to Lloyd's companies like Beazley whose experienced and expert underwriters have the confidence and the autonomy to evaluate the more challenging risks,” says William Pitt, chief marketing officer, Beazley Specialty Lines. “We operate in a less hierarchical and bureaucratic structure than you see in some US p/c insurers.”
"Lloyd's underwriters can act quickly, with greater confidence, on difficult underwriting decisions,” Pitt says. “Whereas the admitted market tends to think twice about complex and large scale risks that are not easily 'boxed'.”
Above all, Lloyd’s underwriters have vast expertise to bring, rather than simply writing business that the admitted market regards as too risky. William Pitt cites the example of a law firm whose professional indemnity account was recently written in the admitted market at a lower premium than Beazley proposed. “Superficially this firm had an attractive loss record,” Pitt says. “But if you looked back at them further than five years, as our people did, their record told a different story. If you want to provide a stable market for an entire class - and we've been writing lawyers PI for more than 20 years - you need to price individual risks correctly.”
Alexandra Glickman, who recently won the Lloyd’s US Surplus Lines Broker of the Year award, believes Lloyd's will remain a formidable force in surplus lines because of the infusion of corporate capital into the market. “More capacity means more clout, and I believe that Lloyd's is well positioned to grow in the US and beyond,” she says.
All US business underwritten at Lloyd's must be placed in accordance with US regulatory requirements. Coverage must comply with local law.
New insurance enquiries from US residents should be directed to an insurance agent or broker licensed to conduct business in the relevant state. Details can be found on the NAPSLO website.
Terms of use
Underwriters at Lloyd's are licensed only in Kentucky, Illinois and the US Virgin Islands, and are eligible surplus lines insurers in all US jurisdictions except Kentucky and the US Virgin Islands.
Lloyd's underwriters are also accredited reinsurers in all states. Insurance policies issued by underwriters are not protected or guaranteed by state insurance guaranty associations or insolvency funds, except in states where licensed.
This site provides general information only and does not constitute solicitation of business. Lloyd's is not responsible or liable for any alleged damage arising from reliance on the information provided.
Last updated on 26 Nov 2007
