Market Outlook
Overview
Based on forecasted 2021 filed premium, revenue and transactions, the data implies that we will bring in $37.75M in stamping fees by the end of 2022. This is based on a submitted premium of $15.1B. This is a 12.9% increase over 2021. We also expect annual transaction counts to come in at 860,000 (5% increase). The data shows that the overall Surplus Lines average premium will grow consistently over the next one to two years, peaking during 2023 and then starting to flatten with a gradual downturn. It is worth noting that the forecasted annual growth is still positive but slowing down as well.
2022 Prediction
2022 Looks strong from all models thanks to a strong 2021.
- Fortunately, the market is very strong as 2021 winds down, which positively influences all models going into 2022. While growth is not as extreme as seen in prior years, several models indicate around a 12.9% increase in premium with a 5% increase in transactions in 2022 or $15.1B and 860,000 respectively. [Exhibit B-1]
Future Market Outlook and Industry-specific Observations
California market beyond 2022
- The overall California Surplus Lines market will appear to have some nice growth in 2023 and for the foreseeable future. In 2023, the data implies that the overall market in California can expect a 13.2% increase in premium with a modest 6% growth in policy activity. [Exhibit B-2]
- It looks like the market will begin to soften in 2023, as average premium per transaction begins to slow down in 2022 through the latter half of 2023, staying nearly flat that year with the last positive increase of 7.0%. This may be the last year of increases in average premium, as one model predicts a downward trend going out of 2023 and beyond. Luckily, the increase in policy activity will keep the overall market on the plus side into the foreseeable future. [Exhibit B-3]
Industry-specific observations
- There were some industries that substantially pulled up overall 2021 premium. This increase in 2021 over 2020 might be due to recovery from Covid-19 and industries stimulated by pandemic activities. Industries such as Retail, Medical, Real Estate and Construction saw double-digit increases in premium. [Exhibit B-4]
- There also were some industries that declined in overall 2021 premium. This decrease from 2020 was primarily due to pandemic and economic wind-down. Industries such as technology and communications, churches, and entertainment saw less growth this year over last year. These industries saw higher than average growth in 2020 because they were directly affected by pandemic activities. As the pandemic winds down, these industries are trending towards “business as usual” level growth. [Exhibit B-4]
- Exhibit B-5 represents changes in premium for various coverages from 2021 vs. 2020 and 2019 as well as their respective market share in those years.
- NOTE: Hospitality is a sub-sector under 72-Accommodations and Food Service. [Exhibit B-4]
Market Outlook Exhibits
B-1: Future Transactions and Premium Forecast Plus Trend Line (calendar year)
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B-2: 2022 and beyond premium and transaction trends
B-3: Average Premium Per policy by year (actual $ and adjusted for inflation)
B-4: Percent change in premium and market share by major industry group
% Growth/Decline in Premium by Sector
-50%
50%
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B-5: ANNUAL PREMIUM COMPARISON AND MARKET SHARE BY COVERAGE GROUP
Stamping Fee Analysis
| 2022 | STAMPING FEE RATES - CURRENT VS ADJUSTED | |||
|---|---|---|---|---|
| Stamping Fee: | Current 0.0025 | 0.00225 | 0.002 | 0.00175 |
| Estimated Annual Premium: | $15,100,000,000 | $15,100,000,000 | $15,100,000,000 | $15,100,000,000 |
| Estimated Annual Revenue: | $37,750,000 | $33,975,000 | $30,200,000 | $26,425,000 |
| Annual Budget: | $23,000,000 | $23,000,000 | $23,000,000 | $23,000,000 |
| Revenue Less Budget: | $14,750,000 | $10,975,000 | $7,200,000 | $3,425,000 |
| Estimated Percent Revenue Over Budget: | 64% | 48% | 31% | 15% |
| 2023 | STAMPING FEE RATES - CURRENT VS ADJUSTED | |||
|---|---|---|---|---|
| Stamping Fee: | Current 0.0025 | 0.00225 | 0.002 | 0.00175 |
| Estimated Annual Premium: | $17,100,000,000 | $17,100,000,000 | $17,100,000,000 | $17,100,000,000 |
| Estimated Annual Revenue: | $42,750,000 | $38,475,000 | $34,200,000 | $29,925,000 |
| Annual Budget: | $24,840,000 | $24,840,000 | $24,840,000 | $24,840,000 |
| Revenue Less Budget: | $17,910,000 | $13,635,000 | $9,360,000 | $5,085,000 |
| Estimated Percent Revenue Over Budget: | 72% | 55% | 38% | 20% |
NOTE: Assume an 8% increase in annual operating budget in 2023 from 2022 (i.e. 8% over $23M in 2022).