It has been quiet on the oceanfront in Florida in terms of hurricanes and tropical storms the past few years. However, the low catastrophe frequency has led to an extremely soft and competitive insurance market for Florida excess and surplus companies, according to underwriters and those who specialize in the Florida E&S market.

"In Florida, we have been fortunate to not have any hurricane action since 2006," says Gary Poulen, executive director of the Florida Surplus Lines Organization (FLSO). "And as those events don't occur, carriers forget what it's like to have those storms and bring capital into the market."

According to Poulen and information from the FLSO, Florida's premiums have declined continuously over the last three years, although the rate of decline has started to slow. In 2009, premiums dropped 9 percent compared to 14 percent the year before. Through May of this year, premiums are only down 3 percent compared to the same time last year.

The excess capital brought in by admitted insurers has forced many E&S companies to fight for accounts with admitted markets that in a harder market the admitted carriers wouldn't touch. On the residential side, competition from state-backed Citizens Insurance with its subsidized low prices has also made things difficult.

"The admitted markets are seeking to maintain and even grow their market share in Florida," says Bruce Bowers, president of the Florida Surplus Lines Association (FLSA), as well as senior vice president of Hull & Co., and National Risk Solutions. "We continue to see an intrusion by these markets in what we considered to be our territory and domain. They are lowering rates and writing coverages with more bells and whistles that previously were not offered. It does not appear to be abating at all."

Challenging for Underwriters

Gary Sanborn, chief executive officer of Crump Insurance's Altamont Springs, Fla. office, says the current marketplace has been extremely challenging for underwriters.

"From a surplus lines broker point of view, we are in the softest point that we think we can get to, and the economy is kind of a double whammy," he said. "We haven't grown in the last two years and have lost business as an organization. Some business was lost partly because of the economy and in Florida the market changed because we haven't had any hurricanes. This year if we came out flat we would be ecstatic because it would mean the market has leveled off."

According to Sanborn, many smaller companies that entered Florida to write business in the last three years will be in for a big surprise should a major natural disaster occur because they have not been pricing adequately. These companies have not been through a disaster and don't know how the costs of paying out claims can impact a company.

"The small companies writing business in Florida cannot survive a hurricane, they never have," Sanborn says. "The carriers Crump has are not the cheapest in the market but they will stay around because they are fairly disciplined in their underwriting and their approach. Florida is different than the rest of the country because one event can change us, and it does."

Sanborn says there have been seven smaller companies that entered the Florida market in the last three years that have gone out of business since January.

"And that's without an event," he said. "That tells you where their pricing is."

Although Florida's surplus lines market is hurting, it is still doing better than some other areas of the country because rates are already higher.

"Generally, because of Florida's catastrophe prone history, premiums for residential and commercial property risks are on the high end of the spectrum when compared to other states, particularly those that are considered non-cat states," said FSLA's Bowers.

Florida's surplus lines premium volume is the second highest in the country, with California being the first. However, Florida's economy has not suffered as much as California's in the last few years so Florida's premium results have been better.

"We are doing as well as any and better than larger states, such as California which is seeing double digit decreases in their premium," Poulen said. "There are differences in economic climates between their state and ours. Unemployment rates are higher there and construction is a lot less."

How Underwriters Maintain Business

Despite the current E&S market challenges, Sanborn says utilizing a wholesaler is a real asset to agents and establishing those relationships now while the market is soft will be very beneficial to retailers when the market turns.

"Retail agents should always have a relationship with a wholesale broker, especially in Florida," says Sanborn. "We will be swamped with business when the market starts to turn, and we and won't take on a lot of new agents when that happens. We tend to do business with people we have already been doing business with. It is all about relationships."

Sanborn says the Crump office in Florida, which works with Lloyd's of London, Scottsdale, Nautilus and Landmark American, is maintaining its underwriting discipline.

"We compete where we think we can and we are still writing business and still in Florida making money as a business," he said. "We pick and choose where to compete and that's what we try to do. We represent strong companies that even when a hurricane comes through, will still be there."

FSLA 'More Relevant'

Bowers said part of what the FLSA is doing to assist agents during this challenging market is strengthening its ties with the local and state insurance organizations that represent Florida independent agents, like the FLSO. It is also strengthening its ties to the national organizations that have a strong impact on members and their businesses, as well as keeping an eye on what happens in the Florida Legislature.

The FSLA has also recently completely redone its website (www.myfsla.com) to make it more functional and informative.

"In essence, we are making the FSLA more relevant, more vibrant for all of our members," said Bowers. "I want to provide a truly value added benefit for each agent belonging to our association."

In the meantime, Sanborn says that the industry has to stop focusing on when the market turns and instead focus on doing business in this market.

"Each month we say to everyone here 'the market we are in is the market we have to learn to compete in,' and we need to market ourselves, our carriers and our products as if this is the way the market is forever," says Sanborn. "If it changes, the better for us, and if not we will learn how to play in this market."

Bowers offers a similar sentiment.

"My advice to our agents is to be patient," he said. "The market will harden and this cycle will pass as they always do. Stay disciplined and stay focused. The good times will be here again."