The Status Trends in the Excess and Surplus Lines Market by jennyyingdi

VIEWS: 7 PAGES: 70

									Welcome to Committee Day 2009:
Working to Advance the Promise of
the Wholesale Insurance Industry
    Membership Composition & Leverage

   Active Members:                     285
   Associate Members:                  156
   Business Services Members:           64
   Stamping & Surplus Lines Offices:    14
                             Total:     488


                          2
     The AAMGA Value Proposition
   Total MGA Members (2008):            285
   Total Employees:                     9,347
   Number of Storefront Offices:        312
   Direct Written Premium (2007):       $22,917,796,224
   Lloyd’s Market Premium (2007):       $ 2,931,141,184
      AAMGA members account for 41.1%




                            3
                 The AAMGA
   Total Direct Written Premium Written by MGA
    member coverholders:
       2007       $ 20.20 billion
       2006       $ 22.94 billion
       2005       $ 21.89 billion
       2004       $ 23.97 billion
       2003       $ 16.45 billion
       2002       $ 13.18 billion
       2001       $ 10.99 billion
   109% increase in DWP between 2002 and 2006

                             4
        AAMGA Committees: a collaboration
            of strength & versatility
   Insurance Automation &
    Technology
   Education
   Marketing
       Communications
       Inter-Association Liaison
   Code of Ethics
   Membership/Member Benefits
   HR Subcommittee
   Governmental Affairs
   Operations
   Under Forty Organization

                                    AAMGA Committee Day 2008:
                                            Dallas, TX
      Industry/AAMGA Opportunities



Maintaining the trust and producing the results to
         continue as the market of choice.




                        6
          Other Developments

   The AAMGA Summer School and student exchange at
    Cambridge University at Sydney Sussex College
   The Lloyd’s Course and Test
   Claims & Litigation Management School
   On-line registration & confirmation
   On-line tracking of classes and hours completed
   Scheduled networking time at each University session




                             7
                     AAMGA UFO
   Over 300 members
    (domestic & international)
   UFO Annual Meeting:
    Leadership, perpetuation and
    management training
    sessions throughout the year
   Increased networking and
    facilitating relationships with
    Lloyd’s & Bermuda “Under
    35’s Group”
   On-line chat room and
    bulletin board on AAMGA
    website


                                      8
                AAMGA Approach
   Working with consumer protection groups
   Working with Industry groups:
       Big I
       Council of Agents and Brokers
       PCI
       COFIR
       ALEC
       NAPLSO
       NCOIL
       State Stamping & Surplus Line Offices
       Surplus Lines Law Group
       White Papers and Presentations
       Advocacy through education; not adversarially
                                      9
            Current Observations
   Federal bailout has to date cost US taxpayers
    $2 trillion
           Putting it in Perspective
   2 Trillion is equivalent to:
     $2,000,000,000,000
     66,300 years measured in seconds

     80,321,285 revolutions around the Earth at the
      Equator
     333 million federal regulators laid end to end
      (assuming each is an average of 6 feet tall)
     403,825 round trips by car (in miles) between
      New Orleans and Atlanta, GA
            Current Observations
   Failures and bailouts have placed ALL financial
    and insurance services under a federal and
    state regulatory microscope
   There will be greater
    federal “oversight” or
    regulation of insurance
    including E&S
            Current Observations
   At the moment…all “insurance” products and
    services are being lumped and viewed
    together
     E&S
     P&C

     LA&H

     Banking
Today’s Surplus Lines Market



Issues and Opportunities




             14
                        E&S vs. P&C

                    1987                  1997               2007
Commercial      $123,314,542,000 $146,668,576,000 $267,718,286,000
Lines

E&S               $6,566,000,000        $9,419,000,000   $37,336,288,000

E&S as a % of       5.32%                 6.42%             13.95%
Commercial
Lines




                                   15
                         Gross Surplus Lines
                         Premiums Written
                            (E&S GPW)
            The importance of                      +$5.5B
              Surplus Lines is                     +14.7 %   -$1.4B
             demonstrated by                                 -3.7%
           much faster growth
           than for the overall
               P/C insurance         +$4.4B
                 industry            +21.4%




                                              16
Source: AM Best 2008 Special Report on E&S Lines
                               Surplus Lines
                              Taxes Collected
                                                                              +$33.4M
              Surplus Lines pay                                  +$132.7M      + 2.6 %
              more than $1.3B +                                   + 11.5 %
                 annually in
               premium taxes
                                                +$50.5M
                              +$114.9M           +4.6%
                               +11.7%




                                                17
Source: Business Insurance, December 2007; Insurance Information Institute.
                        Surplus Lines Premium
                          & Taxes Collected

                                        2005                    2006              2007
    Premium                    $35,896,752,150            $37,786,954,168   $38,176,840,141
    Taxes                      $ 1,157,378,697            $ 1,281,847,169   $ 1,300,706,732


                      Percentage change in premium 2005 – 2007: 6.4%




Source: Business Insurance, September 8, 2008, page 28

                                                         18
            Solvency Ratings: Surplus Lines vs.
                           P&C Market
   Surplus Lines Carriers                 P&C Carriers
       32.5% rated A+ or better               10.3% rated A+ or better
       66.3% rated A- or                      56.2% rated A- or better
        better                                 24.6% rated B++ or
       None rated below B++                    below




                                   19
             Most Common Classes of E&S
               Business Written, 2008
                          Percentage of Most Common Types Offered




                                                           GL and Commercial
                                                          Property are the biggest
                                                                  sellers


                                           20
Source: Insurance Information Institute.
                          Market Trends
   Key Points
       Consolidations will play a key role in the
        landscape of surplus lines groups and single
        companies over the near term and going forward
            Targets will be those who:
                 can attain geographic and product line diversification
                 Secure top line growth
       Strong, well established distribution platforms,
        well established market profiles and mature
        books of business will carry the day


                                        21
   THE ECONOMIC STORM
What a Weakening Economy and
     Financial Crisis Mean
  for the Insurance Industry

     Exposure & Claim
        Cost Effects
                                Real GDP Growth*
                                                                Recession began in December 2007.
                                                               Economic toll of credit crunch, housing
                                                             slump, labor market contraction is growing




                The Q4:2008 decline was
                 the steepest since the
                 Q1:1982 drop of 6.4%




*Yellow bars are Estimates/Forecasts from Blue Chip Economic Indicators.
Source: US Department of Commerce, Blue Economic Indicators 2/09; Insurance Information Institute.
        Real GDP Growth vs. Real P/C Premium
             Growth: Modest Association
                     25%                                                                                                             8%




                                               20.3%
                                                                       P/C insurance industry’s growth is



                                             18.6%
                                                                     influenced modestly by growth in the
                     20%                                                        overall economy                                      6%




                                                                                                        13.7%
                     15%
                                                                                                                                     4%
   Real NWP Growth




                                                                                                                                           Real GDP Growth
                                                                                                                7.7%
                     10%
                                                       5.8%




                                                                                                 5.6%
                            5.2%




                                                                                                                                     2%
                                      4.3%




                                                                                3.1%
                      5%
                                   1.8%




                                                                                                                              1.7%
                                                                                          1.6%



                                                                                                                       1.2%
                                                                             1.1%
                                                                            0.8%

                                                                            0.6%
                                                                            0.4%
                                                              0.3%




                                                                                                                                     0%
                      0%



                                            -0.3%
                                            -0.4%




                                            -0.5%
                                           -0.9%




                                           -1.0%

                                           -1.0%
                                          -1.5%




                                          -1.6%

                                         -1.8%




                                                                                                                                     -2%




                                       -2.9%
                     -5%




                                     -3.8%
                                    -4.2%
                             81 -6.5%




                                                          Real NWP Growth              Real GDP
                              -7.4%




                     -10%                                                                                                            -4%




                            08E
                            09F
                             96
                             78
                             79
                             80

                             82
                             83
                             84
                             85
                             86
                             87
                             88
                             89
                             90
                             91
                             92
                             93
                             94
                             95

                             97
                             98
                             99
                             00
                             01
                             02
                             03
                             04
                             05
                             06
                             07
Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 2/09; Insurance Information Inst.
                        Length of US Recessions:
                            1929 - Present*
                                       Months in Duration
50
45       43
                      “We will rebuild. We will
40                            recover.”                        Current recession began in Dec. 2007
                  President Barack Obama                       and is already the longest since 1981.
35               addressing a joint session of                   If it extends beyond April, it will
                          Congress
30                    February 24, 2009                         become the longest recession since
                                                                        the Great Depression.
25
20
                                                                         16                16                         15
15               13
                                 11      10              10      11
10                        8                      8                                                    8         8
                                                                                   6
 5
 0
        Aug.    May      Feb.   Nov.    July    Aug.    Apr.    Dec.    Nov.      Jan.   Jul. 1981 Jul. 1990   Mar.   Dec.
        1929    1937     1945   1948    1953    1957    1960    1969    1973      1980                         2001   2007
* As of March 2009
Sources: National Bureau of Economic Research; Insurance Information Institute.
THE $787 BILLION ECONOMIC
        STIMULUS:
 Impacts & Implications for
      P/C Insurance
  Emerging Blueprint for Financial Services
           Regulatory Overhaul
          Phase I: Systemic Risk Regulation/Regulator

          •       Oversight Responsibility: Likely With Federal Reserve
                  Fed would have capacity and power to assess risk across
                   financial markets regardless of corporate form and to
                   intervene when appropriate *
                  Fed could oversee (according to House Financial
                   Services Committee Chairman Barney Frank):
                             Hedge funds (need to ensure “complete transparency”)
                             Credit ratings agencies
                             Executive compensation (to curb “perverse risk incentives”)




*http://financialservices.house.gov/press110/press0320082.shtml
Source: Wall Street Journal, “Frank Backs Regulator for Systemic Risk,” 2/4/09, p. C3; I.I.I. research.
                                                                 28
  Emerging Blueprint for Financial Services
           Regulatory Overhaul
         Phase I: Systemic Risk Regulation/Regulator: OTHER
         •       Unification of federal bank regulatory agencies
         •       Creation of a Financial Products Safety Commission to vet
                 products before sold to investors
         •       Creation of federal insurance program for municipal bonds
                 paid via premiums
         •       Support for status quo on mark-to-market

         Phase II: Sectoral Reform/Overhaul
         •       Each segment of the financial services industry will be
                 examined and subject to regulation specific to its function,
                 risks and other factors
         •       TIMELINE: August 2009 or later

Source: Wall Street Journal, “Frank Backs Regulator for Systemic Risk,” 2/4/09, p. C3; I.I.I. research.
                                                                  29
Possible Regulatory Scenarios for P/C
    Insurers as of Year-End 2009
Status Quo:

•   P/C Insurers Remain Entirely Under Regulatory
    Supervision of the States

       Unlikely, but some segments of the industry might
        welcome this outcome above all others




                            33
Possible Regulatory Scenarios for P/C
    Insurers as of Year-End 2009

Federal Regulation:

•   Everything is Regulated by Federal Government

       Unlikely that states will be left totally in the cold




                             34
Possible Regulatory Scenarios for P/C
    Insurers as of Year-End 2009

Optional Federal Charter (OFC):

•   Insurers Could Choose Between Federal and State
    Regulation

       Unlikely to be implemented as envisioned for past
        several years by OFC supporters




                           35
Possible Regulatory Scenarios for P/C
    Insurers as of Year-End 2009
Dual Regulation:
•   Federal Regulation Layer Above State
     Feds assume solvency regulation, states retain rate/form
      regulation

Hybrid Regulation:
• Federal Government Assumes Regulation of Large
   Insurers at the Holding Company Level

Systemic Risk Regulator:
• Feds Focus on Regulation of Systemic Risk Points in
   Financial Services Sector
     P/C vs. Life?

                             36
                                            Source: Insurance Information Inst.
Regulatory Oversight and Federal
   Government Intervention




               40
           Legislative Developments
   Non-Admitted & Reinsurance Reform Act of 2009
       Only the insured’s Home State’s statutory and regulatory
        requirements apply, including those with regard to producer
        licensing.
       All non home state, non-admitted insurance laws and regulations
        are preempted.
       Will be re-introduced in the US House and Senate soon
   Optional Federal Charter
       Establishes single federal regulator of insurance
   Office of Insurance Information
       Provides Congress information on insurance related regulation and
        developments

                                      41
           Industry Opportunities
   Disciplined capital management and deployment
   Continued profitability in Soft Market?
   Market Hardening in 3rd-4th Quarter 2009?
   CAT Modeling (100 mile wide storm vs. 400 mile wide
    Ike)
   Shift from Hard Market Growth to Innovation in the
    Soft Market
   Embracement of technology




                           42
               Industry Opportunities
   New opportunities
       Enterprise Risk Management
       Wealth and Asset Management
       Climatological Change
       Aggregation of Exposures
       Closer collaboration with local authorities on building and zoning
        codes
       Increasing data quality
           Insurance to value and coding accuracy
           Implementation of ACORD Standards
       Ratemaking techniques
           Territorial analyses and allocation of reinsurance costs
       CAT Model sophistication


                                    43
              Industry Opportunities
   Use of advanced analytics by reinsurers at the transaction level
    and capital allocation process
   Convergence of risk management activities to better achieve
    well-controlled and transparent management of risk and
    capital on a cost effective basis
   Creating better efficiencies and compliance with regulations
    and insurance rules by eliminating siloed redundancies and
    misalignments
   Modernize processes
   Refocus on customer demands
   Increase turnaround time on contract documentation, policy
    issuance and claim management
   Enhance intellectual capital and professional development



                                 44
        Industry Opportunities


 Maintaining the trust and producing the
results to continue as the market of choice.




                    45
                      “Crystal Balling” the Future
          Price softening across all lines is waning, but should
           continue to generate positive underwriting results
           through
               adequate rates
               disciplined underwriting and
               favorable prior-year loss-reserve development
          Leading surplus lines companies have well-
           established relationships with wholesale MGA’s,
           brokers, and agents
               will allow them to defend their core books of business and
               withstand the heightened competition from the standard
                market.
Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
                      “Crystal Balling” the Future
          Favorable prior-year reserve development reported
           over the past two years indicates the return of
           adequate reserves.
          Accident year reserve development for professional
           surplus lines companies has been more favorable
           than that experienced by the overall industry.
          Improved pricing and more accurate loss picks in
           recent years, should cause reserve development to
           not be a drain on the surplus lines market during the
           near term.

Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
                      “Crystal Balling” the Future
          Rates on smaller risks historically tend to mirror
           loss costs, which at the beginning of 2007 still were
           going up, although at a decelerating rate.

          Surplus lines insurers still looking to grow their
           portfolios, particularly start-up companies, will be
           challenged to grow their books of small and middle-
           market accounts while maintaining underwriting
           profitability.


Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
                Key Challenges for our Industry

          The ability to effectively manage operations
           through the soft market cycle
          Impact of a potential “on-shore” catastrophe
          Competitiveness from standard markets
          The ability to effectively utilize emerging
           technology to enhance productivity
               Migrating underwriting, policy administration and
                other systems on to a single platform


Source: A. M. Best Special Report: “Excess & Surplus Lines Annual Report – 2007”
Nonadmitted and Reinsurance Reform
      Act of 2009 (“NRRA”)
   Only the Home State of the insured may require a premium tax
    payment. The states may enter into a compact or otherwise
    establish procedures to allocate those premium taxes.
   Only the insured’s Home State’s statutory and regulatory
    requirements apply, including those with regard to producer
    licensing. All non home state, non-admitted insurance laws and
    regulations are preempted.
   Insureds which meet a substantial definition of sophistication and
    financial wherewithal can consent to coverage being acquired
    from surplus lines insurers without the broker having to first
    conduct a diligent search.
Nonadmitted and Reinsurance Reform
      Act of 2009 (“NRRA”)

   HR 5637 passed unanimously in the 109th Congress
    in 2006
   HR 1065 introduced in the 110th Congress in 2007
      Passed by a vote of 417-0 in June 2007.

   S.929 introduced into the US Senate in March 2007
   Committee hearings on S 929 were held – and then
    recession hit
   New Bills expected to be introduced soon
          Optional Federal Charter
   Authorizes the issuance of charters and licenses for the
    sale, solicitation, negotiation, and underwriting of
    insurance or any other insurance operations
   Provides a comprehensive system for the regulation
    and supervision of National Insurers and National
    Agencies, as well as provides for policyholder
    protections in the event of an insolvency or impairment
    of a National Insurer
   Creates a new insurance regulatory structure that
    would allow companies that operate across state
    borders the option to operate under one set of Federal
    rules and regulations
              Thank You!
American Association of Managing General Agents
            150 South Warner Road
                   Suite 156
           King of Prussia, PA 19406
               610.225.1999 (o)
                610.225.1996 (f)
              bernie@aamga.org
The Benefits of Membership in
  the American Association of
   Managing General Agents
          November 2007
            The Top Six Reasons:
1.   The AAMGA’s brand value in the wholesale
     insurance marketplace, and its respect in the greater
     insurance community
2.   The Annual Meeting
3.   Education & Professional Development
4.    Leadership by Committees of Industry Peers
5.   Networking, Networking, Networking
6.   A Heritage of Integrity & Professionalism
    Membership Composition & Leverage

   Active Members:                     256
   Associate Members:                  145
   Business Services Members:           60
   Stamping & Surplus Lines Offices:    14
                        Total:          475
    The AAMGA Value Proposition
   Total MGA Members (2006):                        256
   Total Employees:                               9,347
   Number of Storefront Offices:                    312
   Direct Written Premium (2005):                 $26,917,796,224 *
   Lloyd’s Market Premium (2005):                 $ 2,155,798,989
        Total Lloyd’s 2004 US DWP: $4.6 billion
        AAMGA members account for 41.1%
         _____________________________________________
*
   Compares to Underwriting Year 2005 DWP of $21,883,941,760
   Compares to Underwriting Year 2003 DWP of $16,433,886.633
   Compares to Underwriting Year 2001 DWP of $10,993,827,620
Why do MGA’s want to be a Member?
   Capitalizing on the AAMGA’s established industry
    reputation as a world-class professional trade
    association
   Placing the AAMGA logo and brand value on the
    business cards, letterhead and marketing materials
   Access to industry thought leaders, educators and
    peers to maximize their full potential
Why do MGAs want to be Members?

“Where else can my agency be represented on Capitol Hill, the
  London Market and Lloyd’s, before the NAIC and other
  regulatory agencies, and receive information, data and
  solutions to implement in my office for $850 a year?”

  Francis Johnson:   President, Johnson & Johnson Managers;
                     President, AAMGA 2005-2006
    The Prospect for Sustained Growth
Today’s AAMGA members complement the equation by
  undertaking a:
   selective pursuit of business opportunities and customers;
   execution on developed business plans and strategic initiatives for the
    agency and the individual lines of business;
   consistent application of disciplined underwriting;
   continuing education to train, retain and expand staff competencies;
   development of young professionals entering the market;
   a relentless commitment to performance and service; and
   a distinct focus on results achieved by managing general agents, in
    partnership with those producers, underwriters and markets with whom
    they have maintained a trusting relationship.
 The Prospect for Sustained Growth
Through the efforts of the Association members are
  collectively recognized and have earned the respect of:
      US & UK markets
      Reinsurers
      State and Federal Regulatory Officials and Elected
       Representatives
      Industry Press
      Producers
      Investment Community & Rating Agencies
               The Annual Meeting
           “Where the Wholesale Insurance Community
                      All Comes Together”
   Conduct business in a relaxed and professional venue
   Agents & Brokers Lounge
   Fostering relationships
   Hear from world leaders and opinion makers
   Educational Sessions
   Networking
   Recognitions
   Vendor & Trade Show
         The 2008 Annual Meeting
   Theme: “Focused on the Future”
   Opening Breakfast Speaker:
       Chris Wallace: Fox News “The 2008
         Presidential Election”
   Spouse Speaker:
       Lisa Ling: National Geographic Channel
   Business Meeting Speaker:
       Vince Lombardi, Jr “What it takes to be #1: Lessons from the
        Greatest Coach”
The 2008 Annual Meeting
     Gala Entertainer
              AAMGA University
   New strategic plan in place
       Certified by all 50 state insurance departments to provide
        continuing education
       More concentration on bottom line financial, underwriting,
        claims, litigation and developmental training subjects
       Classes focused on specialized LOBs and tracks
   On-line CE & Office Suite classes in place
   Taking the University “on the road” for MGA’s and
    their producers
          University Developments
   University Weekend, I/T, Business Planning and Human Resources
    classes
   AAMGA Chair on Insurance & Risk Management at Georgia State
    University
   Emphasis and marketability of the CMGA, CWIS & CIW
    Designations
   Internships
   Scholarships
   Duesenberg Family Business Chair
   American Modern Chair on Insurance Marketing
   Williamson Chair on Insurance & Business Ethics
   UFO Annual Summit Conference at Lloyd’s or Bermuda
   MGA & Brokerage School
   Insurance Beginners School
   Commercial Property School
    Professional Development Center
   Enhancing the professional business acumen of
    AAMGA Members with classes and expert instructors
    on:
        Writing business plans
        Writing and understanding financial statements
        Negotiation practices
        Presentation skills
        Strategic planning
        Time management
        Marketing & Communications
Ethics Classes

      AAMGA is the only professional
      trade association to have and offer
      insurance and business ethics class
      curriculum in the US & the UK
    AAMGA Committees: a collaboration
        of strength & versatility
   Automation
   Marketing
       Communications
       Inter-Association Liaison
   Code of Ethics
   Meetings
   Governmental Affairs
   Membership
       Member Services & Benefits
   Nominating & Bylaws
   Under Forty Organization
   University Curriculum Committee

                                      AAMGA Committee Day 2007:
                                              Dallas, TX
The Real Value of the AAMGA…

             Is
            You
The Real Value of the AAMGA…
   Get involved in a committee
   Attend University classes
   Get your young professionals involved in the
    UFO
   Take advantage of world class meetings
   Network with your colleagues
      The value of AAMGA
          Membership
…are all the opportunities and doors that are
 opened to you and your agency, company and
 your employees.
   Thank You
 AAMGA Headquarters
 150 South Warner Road
        Suite 156
King of Prussia, PA 19406
  610.225.1999 (office)
   610.225.1996 (fax)
   bernie@aamga.org
     www.aamga.org
                                       American Association of Managing General Agents
                                                                 Annual Meeting Attendees by State
                                                                              2009

                                                                                                                                                                     130




                                                                                                                                                                80


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            59       59                58

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    6                                                                       6 5 5            5                         5
        4        3        4                      4 3                                                                                      4                                4        3
1                                  2                                                                  2                                            1                                    1        2
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AZ



CO




NE




 RI




UT

VT
 NJ
AK




CT
                American Association of Managing General Agents
                              Annual Meeting Attendee Historical Trend
                                           Member Type
500


450


400


350


300


250


200


150


100


50


 0
       Spouse        Active              Associate     Business Services   Stamping   Press
2006     331          364                  345                45              10        3
2007     322          388                  414                60               8        4
2008     223          429                  454                55              13        3
2009     149          314                  421                65              12        5
American Association of Managing General Agents
         Annual Meeting Attendee Historical Trend
                          Total




          972                               1,103




 1,180                                         1,196




           2006          2007        2008       2009
                Average for last 4 years = 1,090.2

								
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