Market Analytics

Table of Contents

Introduction

• The first part of this report will focus on market performance as observed though SLA premium and transactions. The second part of this presentation will be a presentation of Operating Budget and expenditures for 2023.
• Part 1 will start off with an overall view of the market data that’s been observed this year compared to prior years. Then some of this market data will be unpacked into NAICS codes of the insureds and Lines/Coverages.
• Note, the data shown is through May, 2023 which is the first half of SLA’s fiscal year that runs December through November. The unpacked NAICS and Coverage information will be for the calendar year. Lastly, NAICS codes are the “North American Industry Classification System” codes that identify which industry the insured works in for each policy received by SLA.

MARKET OVERVIEW

• The charts below show our premium and transactions for the first half of this fiscal year (Dec-May) as compared to the same period last year. The second chart shows the first half of this fiscal year with the prior 6 months. It’s worth noting that in every year past, Q3 and Q4 are substantially higher than Q1 and Q2. As shown, SLA has received 3% less premium than the same period last year and 3% more transactions than the same period last year. Also, average premium per transaction is down 5% for the same period.

Q1-Q2 PERFORMANCE – FY’ 2023 VS 2022 (DEC-MAY)

Q1-Q2 PERFORMANCE -FY’2023 VS 2H2022 (PRIOR 6 MO’S)

• The graphs below represent monthly premium and average premium with a forecasted trend lines. Notice the predicted slow growth over the next 18 months is much slower than the last few years.  The second graph is of the S&P 500. This index shows a good correlation to SLA’s monthly premium and the trend lines behaves in a similar pattern. The S&P 500 and Wilshire 5000 are both highly correlated to total premium.

MONTHLY PREMIUM FORECASTED THROUGH 2024

AVERAGE PREMIUM PER TRANSACTION-MONTHLY W/2024 FORECAST

MARKET FORECAST/REVENUE PREDICTIONS

• In reevaluating the forecasting models for the remainder of 2023, the predicted uptick should result in a 5% increase in premium over last fiscal year and 10% increase in policies. Last year, the prediction was 11% growth for this year’s premium. It’s also worth noting that in all models, average premium is down. As calculated, this is largely due to the strong increase in transaction counts. We should expect around $35M in received stamping fees for this fiscal year, as a result of exceptionally late transactions through May at the prior stamping fee rate of 0.25%.
• The models for the calendar year are more favorable than the models for the fiscal year. This is based on 7 months of estimates, so there is more uncertainty in this model. However, it is very close to the original predictions made last year.

INDUSTRIES OF THE INSUREDS-SURPLUS LINES PERFORMANCE

• As can be expected, non-admitted California market performance based on NAICS codes of the insureds tracks closely with several economic factors and the financial performance of major industries. The charts below show some performance information about various industries and their relationships with the California non-admitted market.

LINES/COVERAGES PERFORMANCE

• The charts below indicate some substantial movement in the top 21 lines, starting as far back as early 2022 with the decline in Commercial Auto. This year, Cyber Liability is at or near the top in all areas. Homeowners, Earthquake and Personal Lines have done well in the last year, but it will be interesting to see how the admitted departures from these markets affects Surplus Lines–will they grow or follow suit. Past behavior indicates growth.

PREMIUM % CHANGE FROM 1H2023 TO SAME PERIOD LAST YEAR

AVG PREM % CHANGE FROM 1H23 TO SAME PERIOD LAST YEAR

Premium Market Share