2019 AM Best Annual Report Highlights
About the report
Produced through the cooperation of AM Best and the Foundation, AM Best's 2019 Special Report, U.S. Surplus Lines - Segment Review
is one of our most important tools in promoting and illustrating the industry’s strength and stability.
The report provides AM Best’s perspective on the state of the market and the relative positions of carriers in the market, and it examines the surplus lines sector’s financial condition and ratings distribution, market trends, regulatory and legislative developments, distribution issues, and impairment trends. The report also includes the results of AM Best’s survey of surplus lines insurers measuring the proportion of surplus lines premium derived from various distribution channels. AM Best’s survey results indicated the largest distributors of surplus lines products continue to be wholesale agents and brokers without binding authority.
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2019 Report Highlights
- Growth of 11.2% in surplus lines direct premium written in 2018, with surplus lines premium of $49.9 billion, setting a new record.
- In the retrospective on page two of the report, AM Best notes that, despite numerous economic, regulatory, legislative and market-related challenges, the surplus lines market more than doubled in size over the last 20 years, from 3.3% of total property/casualty direct premiums written in 1998 to 7.4% at the end of 2018. Surplus lines grew as a percentage of commercial lines direct written premium from 6.7% to 15.7% over the same time period.
- As discussed last year, this report is the first in 15 years noting a financial impairment of a surplus lines carrier, in contrast to the admitted property/casualty industry’s 239 financial impairments over this time period. However, AM Best continues to note that ReliaMax Surety Company, which South Dakota placed in liquidation in June 2018, was a unique surplus lines insurance company created solely to issue monoline coverage for private and federal student loans originated by financial institutions that had been consolidated and/or refinanced. The surety bond coverage issued by the company covered 12-month periods for loans issued by the financial institutions during that time. However, the insurance policies covered the life of a loan, which in some cases was upwards of 20 years. ReliaMax was established as an excess and surplus lines carrier in 43 states and Washington, DC, and as an admitted carrier in six states, including South Dakota. Based on available documentation, at least part of the company’s financial difficulties concerned uncollectible loan receivables from its parent company, totaling $22.2 million at the end of 2017. At this time, the liquidator expects to fully pay all valid Class 3 claims (i.e., predominately claims for losses incurred) and further expects to make only a pro-rata distribution on return of Class 4 unearned premium claims.
- Domestic professional surplus lines insurers continue to maintain a higher proportion of secure ratings than the overall property/casualty industry. Through midyear 2019, 100% of surplus lines companies maintained secure AM Best ratings compared to 96.6% for the total property/casualty industry, with surplus lines carriers having much higher proportions in the Exceptional, Superior and Excellent rating categories.
- Section II of the report measures the surplus segment's financial performance, noting favorable performance in relation to the broader P&C industry over the longer term.
- AM Best continues to maintain its stable outlook on the surplus lines market.