With $639.5 million more in surplus lines premium reported for the first half of 2021 compared with the first half of 2020, the Texas surplus lines market grew by 16.23 percent, a stronger growth than the 13.41 percent last year, surpassing midyear growth numbers for the previous four years. One effect of the accelerated growth in premium is that the Surplus Lines Stamping Office of Texas continues to collect more in stamping fees than it costs to operate the office, making it difficult to chisel away at the excess funds held in its reserve fund, despite halving the stamping fee as of January 1 of this year.
Total surplus lines premium reported to the Surplus Lines Stamping Office of Texas by June 30 exceeded $4.58 billion, compared with last year’s midyear total of $3.94 billion.
This 16.23 percent increase in premium was accompanied by a 2.9 percent decrease in the number of policies filed with SLTX. Isolating the month of June only for the year-over-year comparison, the 24.5 percent increase in premium reported in the most recent month was accompanied by a 0.4 percent decrease in number of policy filings.
SLTX Executive Director Greg Brandon said that June 2021 ranks as the highest single month of reported premium in SLTX’s 33-year history, with $947.48 million in reported premium. SLTX expects the trend to continue with the existing hard-market conditions during the remainder of the summer renewal cycle.
As expected from these results, average premium per policy increased, to $13,114 from $10,959 at midyear 2020. This is a 19.66 percent increase in the average premium of a policy written in the surplus lines market. Average premium for multi-state policies filed in Texas rose 35.56 percent compared with midyear 2020. The average multi-state policy premium was $149,691, as multi-state premium accounted for 5.48 percent of total Texas premium.
In a July 8 media release, SLTX said, the year-to-date trend saw 63 percent of premium reported in June attributable to renewal policies even though they accounted for only 39 percent of the items reported. On the flip side, about 37 percent of the premium and 29 percent of the items are related to new business. About 0.5 percent of the premium relates to endorsements, cancellations, audits and installments, while these non-premium items make up the remaining 32 percent of all items processed during the month of June.
In May, the renewal to new policy ratio was 61 percent renewal, accounting for 37 percent of the items to 36 percent of premium and 30 percent of items attributed to new business. The balance was other items, such as endorsements, cancellations and audits.
At midyear, the coverage line with largest dollar gain of $281.4 million was Other Liability, the largest of the lines written in the Texas surplus lines market. Other Liability made up 42.6 percent of all Texas surplus line premium in the first half of the year. The gain is an increase of 16.83 percent over the first six months of 2020, surpassing last year’s midyear growth of 12.77 percent. Last year ended with Other Liability up by 9.10 percent.
For the month of June only, a July 8 SLTX media release said that about 75 percent of total premium increases can be attributed to three lines: Fire (including Allied Lines), Excess/Umbrella and Commercial General Liability.
The second largest line, Fire (including Allied Lines) experienced a more modest gain, growing by $37.5 million or 2.60 percent. At midyear, Fire (including Allied Lines) made up 32.2 percent of all surplus lines premium filed. Combined, these top two lines made up 74.8 percent of all surplus line premium filed in Texas.
Within the Other Liability coverage line, the largest gain was in Excess/Umbrella, which was up $178.6 million, or 27.15 percent. Reclassification and the addition of many subcategories of coverage in January make it difficult to compare other subcategories within the Other Liability line. A new subcategory, Representations and Warranties, for example, exceeded $58.3 million in 2021, but this subcategory was not previously separated for filing and reporting purposes. Cyber Liability, which has been tracked as a separate category for quite some time, showed an increase of nearly $30.3 million, or 60.27 percent, compared with midyear 2020.
The second largest premium increase was in Commercial Multiple Peril, up nearly $138.8 million, or 83.84 percent. With $304.3 million in Commercial Multi-Peril reported, the line garnered 6.64 percent of all surplus lines writings so far this year.
Other Commercial Auto Liability, which had 4.57 percent of all surplus lines premium at the end of the first quarter, had 4.08 percent of the surplus lines market at the midyear point. This line increased by $73.5 million, or 64.88 percent over midyear 2020.
Other lines showing multimillion increases over 2020 midyear were Allied Lines, up $65.4 million or 58.97 percent; Commercial Auto P.D., up $23.1 million, or 23.87 percent; Ocean Marine, up $17.8 million, or 151.60 percent; Inland Marine, up 14.2 million, or 28.35 percent; Credit, up $10.2 million, or 18.57 percent.
Also, Surety, up to $173,752 in premium after being in a negative premium status at midyear last year, posted a 102.6 percent increase. Burglary and Theft was up $2.1 million, or 110 percent; Products Liability, up $2.1 million, or 15.43 percent. The remaining lines with gains by midyear were Fidelity, up $1.5 million, or 79.39 percent; Earthquake, up $1.1 million, or 225.02 percent, All Other A&H, up $0.5 million, or 10.90 percent; Other Private Passenger Auto Liability, up $101, 611, or 133.5 percent, and Private Passenger Auto P.D., up $46,913, or 10.3 percent.
The reported premium in Workers’ Compensation is for A&H-Occupational Accident. This is the first year this coverage is reported outside the All Other A&H filing category.
Declines in premium were spread over five lines. Together, these lines made up 3.64 percent of the total premium volume at midyear 2021. At the end of last year, these same lines made up 5.36 percent of surplus lines total premium volume.
The largest decline was in Homeowners Multiple Peril, down $17.1 million or 14.86 percent. Medical Malpractice premium was down $12.4 million, or 24.52 percent; Group Accident and Health was down $11.7 million, or 30.58 percent. No other lines showed midyear-to-midyear multimillion dollar decreases in premium.
Multi-state premium for the first half of 2021 was about $250.9 million, or 5.48 percent of the total taxable premium reported by June 30. At midyear 2020, multi-state premium was $185.1 million, a decrease from midyear 2019, when multi-state premium was just under $210.0 at midyear. By policy count, the 1,676 multi-state policies made up 0.5 percent of all policies filed by June 30, up from the 1,499 multi-state policies filed in the first half of 2020.
The midyear policy and premium report of the stamping office showed that there have been 1,551 policies filed for exempt commercial purchasers and 76 for industrial insureds through June 30, 2021.
SLTX continues to receive mailed filings, but noted that at midyear, 98.2 percent of all filings were made online. As of midyear, SLTX has collected more than $4.1 million in stamping fees, $1.8 million less than at midyear 2020. The stamping office attributes some of the over budget collections to filings after Jan. 1 that were not eligible for the reduced stamping fee due to a 2020 inception date on the contract.
During the June 24 meeting of the SLTX board, Donna Aug, director of finance, updated the members of the board on the revenues and expenses of the stamping office as of the end of May. Actual stamping fee revenue through May was $3.39 million; 35 percent more than what was anticipated in the 2021 budget. Expenses for the same period were under budget by 37 percent, leading to a current excess of revenue over expenses of $1.3 million.
According to the minutes of the March 25 meeting, as of the end of January 2021, the new allowable maximum unrestricted fund balance is $7.76 million, up from $7.26 million because of the newly calculated rolling average of twice the annual SLTX operating costs for the prior five years. In March, when the unrestricted fund balance was reported to be $27.2 million, SLTX anticipated reducing the unrestricted, undesignated fund balance to $26.1 million by the end of 2021. As of the end of May, this fund balance had grown, not shrunk.
The unrestricted fund balance, at the end of May, stood at $28.5 million, or about $20.7 million in excess of the amount allowed under the plan of operation. Aug told the board members that the stamping fee revenue was not leveling out as anticipated. Brandon noted that the excess revenue is related to higher than projected premium and lower than budgeted expenses due to continued Covid restrictions that have limited travel and education. In March, said Brandon, the stamping office board recommended no change to the stamping fee for the remainder of 2021. The stamping office continues to project that the unrestricted fund will come into compliance with the plan of operation by 2034.