2. What is Excess & Surplus? Insurance coverage to consumers that the standard market is unable or unwilling to provide due to the characteristics of the risk It’s a “safety valve” which provides coverage for hard to place risks, as well as those that would otherwise be unprotected, or where the amount of premium required to protect those risks would be unaffordable
3. What is Excess & Surplus? Offers specialty insurance in large part Free of rate and form restrictions imposed on other insurance carriers. Able to react to changes in the market and design a policy that meets the needs of the insurer and the insured Surplus lines companies may not be as regulated as traditional carriers, but are not unregulated: Each company must be licensed (admitted) in one of the 50 states and must meet the solvency requirements of that state As a result, the state of domicile becomes the regulator over that insurer
4. Why Excess & Surplus? It is to supplement the standard market and not to compete Three basic categories of surplus lines risks: Non-standard risks which have unusual underwriting characteristics Unique risks which admitted carriers do not offer a filed policy form or rate Capacity risks where a client seeks a higher level of coverage. Examples of such risks include aviation, product liability, inland marine, earthquake, and professional liability.
5. Traditional VS Surplus Traditional Insurance Surplus Lines Insurance Insurance Buyer Insurance Buyer Retail Agent Retail Agent Out-of State Agent Standard Lines Insurance Company Surplus Lines Agent Surplus Lines Intermediary Surplus Lines Insurance Company
6. U.S. Surplus Lines – Top 15 Companies (CY 2008) Rank Company Name Group Name Surplus Surplus Lines Lines DPW Mkt. Share Lexington Ins. Co. AIG $5,962,384 17.3% Amer. Int’l Spec. AIG $1,184,418 3.4% Steadfast Ins. Co. Zurich Fincl. Svcs. $1,179,278 3.4% Scottsdale Ins. Co. Nationwide $1,095,157 3.1% Columbia Casualty CNA Ins. Cos. $712,603 2.0% Evanston Ins. Co. Markel Corp. $615,722 1.7% Landmark American Alleghany Ins. Hldg. $588,217 1.7% AXIS Surpl. Lines AXIS Ins. Group $538,352 1.5% Westchester Surpl. Lns. ACE INA Group $517,812 1.5% Colony Ins. Co. Argo Group $517,599 1.5% Illinois Union Ins. Co. ACE INA Group $508,365 1.4% Arch Specialty Ins. Co. Arch Ins. Group $468,808 1.3% Admiral Ins. Co. W.R. Berkley Group $424,139 1,2% Indian Harbor Ins. Co. XL America $405,392 1.1% Nautilus Ins. Co. W.R. Berkley Group $378,438 1.1% Source: A M Best
7. Regulation of Surplus Lines Standard line market insurance companies are referred as “admitted,” “licensed” or “standard” All insurance premiums are taxed, the licensed admitted carrier remits the taxes to the state and includes the charge for the tax in the insurance premium Excess and surplus line market insurance companies as “non-admitted,” “unlicensed” or “non-standard.” In the surplus lines market, the surplus lines broker is responsible for collecting and remitting the premium tax to the state.
8. Regulation of Surplus Lines contd.. Most states require surplus line insurance companies to have higher policyholder surplus standards than what they demand of admitted markets. This provides strength to surplus lines insurer, and its ability to remain profitable while, at the same time, complying with increased financial minimum requirements of the states It is the state’s way of holding non-admitted carriers to a higher financial standard as the surplus lines policyholders are not protected by the guaranty fund
9. Regulation of Surplus Lines contd.. Each state has its own financial requirements for approving a surplus lines carrier. Some states have what is referred to as a “White List” identifying the carriers approved to do business in the state. Others have a “Black List,” which accepts all those carriers except those on the Black List
