Texas, Louisiana surplus lines premium decreases in 2005

Insurance Journal South Central–Arkansas, Louisiana, Oklahoma and Texas–vary widely in the amount of premium written in any given year. Texas has the biggest surplus lines market, followed by Louisiana, Oklahoma and then Arkansas. While the Arkansas market is small, it is stable. Premium volume declined in 2005 in both Louisiana and Texas, and Oklahoma is grappling with statutory language that is confusing for agents and insurers alike.

Arkansas
Arkansas began licensing non-resident surplus lines brokers in response to the Financial Modernization Act of 1999, (the “Gramm-Leach-Bliley Act”), which included provisions to protect consumers’ personal financial information held by financial institutions.

The Arkansas Insurance Department does not regulate surplus lines nor file rates or policy content. Surplus lines brokers furnish tax reports, which include the amount of premium written. According to Charlye Woodard, communications director for the department, the amount of surplus lines premiums written in Arkansas in 2005 was $205.7 million. She said the expense of that underwriting was $5.2 million and the tax due was $8.4 million.

Louisiana
In Louisiana, the surplus lines market wrote $750 million in premiums in 2005, a decline from $900 million in 2004. Louisiana doesn’t have a surplus lines stamping office; individual companies keep their own information. But, the leading carriers in Louisiana are generally similar to those in most states according to Ricky Jenkins, president, Louisiana Surplus Line Association. “I know Lexington, one of the biggest in the United States, is also big in Louisiana. Scottsdale is big here … there’s a lot of London business here, too,” he said.

Key topics for LSLA in 2006 include legislation the Louisiana Department of Insurance is going to bring up regarding adjuster licensing–LSLA wants to see that passed. Jenkins believes good education requirements, as included in the legislation, are essential to establishing quality adjusting. “Right now you do not have to have a license to be an insurance adjuster in Louisiana,” he said.

Another issue is the passage of the emergency rules changes last year in the aftermath of Hurricanes Katrina and Rita.

The LSLA would like to see reform to these rules, as they apply to surplus lines carriers in all forms of property insurance. “The emergency rules issued by the department directed us not to substantially raise rates, decrease coverage or non-renew risks with previous damage. It forced the insurance market to renew coverages,” Jenkins said.

He said reciprocity is a principal issue going into 2006 for both the LSLA the National Association of Surplus Lines Offices. Jenkins said there is non-uniformity among states with regard to reciprocity laws. “Agents from South Carolina can come do business in Louisiana as a non-resident, surplus lines agents from South Carolina. But, if we try to do business over there, we have to follow a completely different set of rules–even though they’re on the reciprocity list of states approved to do business. There is no uniformity.”

That is a copious issue with Jenkins and the LSLA. States broadly agree on the need for reciprocity between one another, but, Jenkins said, it must be uniform. He feels there should be no unfair advantage in favor of any state.

Jenkins will impart opening comments at LSLA’s 2006 convention, “Life After the Storms,” starting April 19 at the L’auberge du Lac Hotel and Casino Resort in Lake Charles.

Oklahoma
Licensed property/casualty insurers wrote $4.9 billion in premium in 2004, according to Don Green, assistant commissioner, financial division, Oklahoma Insurance Department. The department’s 2004 annual report and directory indicated the surplus lines insurers paid tax on $314 million in written premium.

A two-year state of confusion has shrouded the surplus lines laws in Oklahoma, said Independent Insurance Agents of Oklahoma Ex-ecutive Director Dan Ramsey, and the difference between what the statute says and what administrative law judges say remains cryptic.

He said things are shaping up better now than they were earlier regarding surplus lines and is optimistic about this issue going into 2006. “The State Medical Association was the only group in real opposition to our bill, and we got them into agreement with what we are trying to do, so I think that looks pretty good.”

The confusion stems from a 2004 case in which an IIAOK member was threatened with an $80,000 fine and loss of their insurance license for the sale of surplus lines to a nursing home. At the time there was only one admitted carrier writing convalescent and nursing homes in Oklahoma, Hospital Casualty Corporation, which subsequently went out of business and was declared financially insolvent. The agent’s client knew that Hospital Casualty was having problems and didn’t want to buy coverage from a company with those kinds of issues, according to Ramsey.

The agent felt it was not in the customer’s best interest to place the account with a financially troubled company when there were financially strong surplus lines markets with comparable coverage.

“The court was basically telling them they could not offer that coverage, so the [insurance] department then asked us to enter into a friendly lawsuit to try to determine what the statute really says,” said Ramsey.

A Tulsa agency also filed suit and they ended up co-plaintiffs on the case and won. The judge ruled the law was too restrictive and not in the best interest of the consumer. A repeal is confusing the language of the statute again and that is what the association is trying to resolve.

“I would just like to get clarity so our members know what they can do,” said Ramsey. The association is backing a bill that would eliminate one of the more restrictive provisions of the surplus lines law.

Texas
In 2005 more than $3.04 billion in surplus lines premium was written in Texas, a decrease from the prior year. “Every six months I polled the stamping offices putting together a kind of a spread sheet, tracking what we were seeing. Our state was by far the biggest drop,” said Phil Ballinger of the Surplus Lines Stamping Office of Texas.

Citing a variety of reasons for the decline, Ballinger guessed two of the major reasons stem from the 2003 legislative session: Rate and form regulation reform and tort reform.

The tort reform put a cap on punitive damages and made class action lawsuits difficult. “It made the liability climate in the state much more predictable for insurers, so we had a lot more licensed companies coming in,” Ballinger said. “The resulting depopulation of the homeowners market in surplus lines kind of paralleled what you had in the FAIR plan: a lot more companies coming in to write homeowners. There was a decline of more than 20 percent in the surplus lines market for homeowners in 2005 and I suspect that there will be a similar drop in the FAIR plan.”

He said property rates softened as licensed companies came in. “Up until Rita, we didn’t have cat problems like Florida was having. Even with Rita, to this point in the stamping office we haven’t seen the types of firming property numbers that we would have anticipated from the hurricane season. So we could well see a decline again this year.”

Texas once was the second biggest state for surplus lines. Last year, it was fourth, bypassed by New York and Florida. California remains the largest with about $5 billion in premiums.

A recent victory in Texas, Ballinger said, was a piece of legislation from the 2005 session that became effective this year: The repeal of the surplus lines bond where surplus lines agents had to have a $50,000 surety bond.

Of the surplus lines market in Texas, Ballinger said it is, “very unpredictable and hard to read right now. Depending on what agent or broker you talk to, you may get a pretty different picture on the market.”