Premium data from all surplus lines stamping offices for 2019 shows that California once again led the nation in total surplus line premiums, possibly boosted by construction spending and wildfires.

The Surplus Line Association of California recorded $9.09 billion in premiums last year, plus an additional $1.17 billion on policies from 2018 that were analyzed and processed in 2019.

The seven stamping offices in the Western U.S. – California, Washington, Arizona, Oregon, Nevada, Utah and Idaho – reported a total of $13.53 billion in premiums in 2019.

Excess and surplus lines insurance premium in Texas reached $6.95 billion in 2019, a 14.36% increase over 2018’s premium total of $6.08 billion, according to the Surplus Lines Stamping Office of Texas.

Texas, Illinois and Minnesota totaled $9.48 billion in premiums, while the Southeastern states (Florida, North Carolina and Mississippi) totaled $8.07 billion, and the Northeastern states (New York, Pennsylvania) totaled $6.42 billion.

According to Benjamin J. McKay, CEO and executive director of the Cal-SLA, the state continues to see record growth in both premiums and transactions.

McKay said this is the fifth straight year California has recorded record surplus lines premium.

The growth is being largely driven by construction, according to McKay.

“If you look at any of the major cities, there’re cranes everywhere – Los Angeles, San Francisco, San Jose,” he said. “There’s just a lot of building going on in California.”

That’s a function of the broader U.S. economy, which has been good for several years.

“We’re experiencing an economy that’s the best we’ve seen in a long time,” McKay said. “This is a booming economy right now and our market’s reflecting that.”

Organic premium growth was 19.6% higher than our previous record of $7.6 billion in premiums in 2018, according to the Cal-SLA.

Premium volume from homeowners polices written by California’s surplus lines industry, although still small, has doubled over the past four years, seemingly pushed by an increase in wildfires in the state. According to the Cal-SLA, homeowners premiums and policy counts have been rising steadily as more wildfires erupt throughout the state each year.

What’s the outlook for surplus lines in California in 2020?

“We’re sort of mixed,” McKay said.

The economy still looks strong, however in January 2019 the yield curve inverted, an event that on average is an indicator of bad economic times within the next two years of that occurring. And there’s the impact of the recent trade war between the U.S. and China, as well as the Coronavirus, to consider on the economy.

Erring on the side of caution, McKay said the Cal-SLA is taking steps to leverage the current economic boom ahead of when the inevitable adjustment does occur.

The Cal-SLA in 2020 intends to take steps to retire a large pension liability and debts from moving costs incurred when it relocated its headquarters out of San Francisco in 2017, a move designed to ultimately save the group money.

The Cal-SLA’s board of directors replaced its pension fund with a 401(k) in 2011, which will eliminate $600,000 a year in servicing costs, according to the group.

McKay said the Cal-SLA’s contingency fund currently sits around $5 million.

The Cal-SLA board voted last year to adjust the stamping fee to 0.25%, effective Jan. 1, 2020. The stamping fee had been set at 0.2% for seven years.

The stamping fee is the primary source of revenue for the SLA, a non-profit association. The revenues fund all SLA operations, including a data analysis department that reviews roughly 800,000 surplus lines filings annually on behalf of the California Department of Insurance.