Orlando in Florida is best known for its theme parks. This week thousands of insurance executives descended on the city for the annual NAPSLO (National Association of Surplus Lines Offices) convention. The theme of this year's event was the swings and roundabouts of the domestic insurance market.
Uniquely Amercian
So-called surplus lines insurance is a uniquely American concept. Also known as the excess and surplus (E&S) lines market or the non-admitted market it refers to risks that standard insurers won’t cover.
In other words, before submitting a property or casualty risk to surplus lines insurers, buyers must first try to get a quote from admitted insurers. If they can’t get cover there they are allowed to go to surplus lines insurers, which operate with greater freedom from rate and form filing regulations.
In that sense, the market plays a very important role in the US economy, providing essential coverages to businesses and individuals who would otherwise have to “go bare” – that is, operate without insurance protection.
Lloyd's one of biggest Surplus lines insurers
Lloyd’s insurers and brokers are among the biggest players in the surplus lines business in the US. In 2008 Lloyd’s insurers wrote direct surplus lines premiums worth over $7bn, giving them a market share of nearly 20%. So a large contingent of Lloyd’s risk specialists was in Orlando for the annual convention this week.
Lloyd’s insurer Beazley sent more than 20 executives to the meeting, all of them with very full diaries. “The NAPSLO convention is a hive of broker and underwriter activity. It is very frenetic and makes other industry conventions look positively low key,” Beazley spokesman William Pitt told lloyds.com. “Our presence [this year] has increased thanks to the acquisition of the insurer First State earlier this year. Our Private Enterprise unit, which is focused on small businesses is also well represented.”
Speaking to lloyds.com prior to the convention Pitt predicted pricing would be a big talking point. "People will be discussing the rating environment, especially in the casualty classes and looking for signs of hardening”. There will also be a lot of talk about competition and market dynamics vis a vis the admitted market insurers and their appetite for business.
“There are new competitors coming into parts of the market. But a counterpoint to this is the significant market dislocation caused by the financial problems at some of the very biggest insurers,” Pitt points out. “Lloyd’s is very well perceived in the US today and Beazley is seeing a lot of demand for its products.”
Gary Clark, head of programmes and facilities at Lloyd’s broker Miller agrees that the US insurance market is in flux.
“There are different factors at play including an over abundance of capacity, the economic downturn and the lack of a natural disaster to move the market,” he reckons. “So I think what will be on the minds of a lot of people in Orlando is ‘how do we trade through this soft cycle?’ and, ‘where is the market going in the next 12-24 months?’”
Restructuring ahead?
Clark thinks that there could be restructuring ahead among domestic surplus lines companies. “Some companies, especially brokers, will struggle to grow their top line and will be looking for an exit route. This may lead to further uptake in mergers and acquisitions,” he predicts. “Increased confidence in the financial markets will make some companies look more closely at acquiring smaller companies.”
Another topic on the agenda will be possible changes in the rules surrounding surplus lines insurance across the States. The Non-Admitted and Reinsurance Reform Act (HR 2571), which has been passed in the House of Representatives and now goes to the Senate, would allow brokers representing large policyholders to go directly to the non-admitted market to purchase insurance.
Risk managers in the US strongly support the move. Deborah M. Luthi, a member of board of directors at US risk manager association RIMS. said “RIMS views the surplus lines industry as central to the nation’s economic health, and H.R. 2571 will serve to bolster the industry by not only making this insurance more available, but more cost effective as well.”
