California Processes 15.5% Fewer Surplus Line Premiums

The Surplus Line Association of California has processed $1.9 billion in premium for the first six months of 2010, a decrease of 15.5 percent compared to the same period in 2009. The total number of policies filed with the SLA from Jan. 1 through June 30, 2010, was 209,545, representing a 4 percent decrease compared to the 2009 six month policy count.

This is the third year of steady declines in surplus market share, which is supposed to happen in a soft market, said Ted Pierce, SLA executive director. “Our prediction is the market would hit bottom by this summer, and that absolutely has not happened,” he said.

If the trend continues, SLA expects it will process $3.8 billion in premium for the year, according to Joy Erven, stamping office director.

Year-to-date, U.S. domiciled insurers wrote 76.4 percent of the California surplus line premiums, while Lloyd’s wrote 17.1 percent and all other alien insurers wrote 5.4 percent.

Meanwhile, the state Legislature is hoping to increase the total capital and surplus requirements for nonadmitted insurers in California to at least $45 million, up from $15 million.

AB 1708 (Villines), which was sponsored by the California Department of Insurance and is awaiting Gov. Arnold Schwarzenegger’s signature to be signed into law, would require $25 million of this amount to be held in forms that meet the requirements of Department of Insurance statutes relative to the general investment law. The bill would authorize the balance of the required minimum capital to be held in instruments that are allowable under either the General Investments Law or the Excess Funds Investments Law.

If a nonadmitted insurer on the List of Eligible Surplus Line insurers does not meet the capital and surplus requirements as of Jan. 1, 2011, the insurer would be required to have at least $30 million in capital and surplus as of Dec. 31, 2011, and at least $45 million by Dec. 31, 2013.

“The previous $15 million capital and surplus requirement has been in place since the ’90s, so is not near as meaningful in guaranteeing financial solvency of surplus line insurers today,” Pierce said. “This is a needed inflationary increase.”

Pierce also noted that 80 percent of eligible surplus line insurers in California already have $45 million or more in capital and surplus, so they won’t have to make any adjustments meet the new requirement.

The Legislature also passed AB 1837, which would authorize admitted affiliates of California domestic insurers to provide administrative services to nonadmitted affiliates approved by the DOI to accept surplus line placements in California. Administrative services include computer operations, clerical and administrative staffing support, human resources, claims adjusting and investing services.

The last day for the governor to sign or veto bills passed by the legislature is Sept. 30.

California’s Top 10 Surplus Line Brokers

Source: SLA