The excess and surplus (E&S) lines insurance industry was in a good place last year, characterized by a stable market and moderate growth, according to one executive who is bullish on the sector.

“I think the E&S market is the market to be in. First of all, everything we do is a decision. There’s an underwriting decision on every policy,” said Michael D. Miller, president and chief operating officer of Scottsdale Insurance Co. “We underwrite and make a decision. It’s judgment and it’s people and it’s talent.

Speaking at the annual meeting of the Texas Surplus Lines Association in Austin, Miller told the audience of E&S professionals that a market with a 5 to 8 percent uptick in rates is “a whole lot better” than one in which rates are going up 70 to 80 percent, only to drop again two years later. Such drastic swings in market pricing are difficult to explain to customers, he said.

A firming market with a moderate uptick in rates is more sustainable, Miller said, and better fitting with the current economy.

“The fact that [rates are] ticking up a little bit means that it’s not impacting the economic engine to any great extent but it’s also putting a little bit back in the coffers to help with the lack of investment income and continued claim inflation,” Miller said.

Another positive development is that a fair amount of business is moving back into the surplus lines market, he said. “That’s always a good sign. We see that as continuing through the next couple of years.”

In addition, Miller said, in the final analysis the E&S market was expected to produce an underwriting profit for 2013.

Texas, he said, is the third largest state in terms of E&S premium, and the fourth largest for Scottsdale, specifically. It has its challenges – catastrophes, for one. “You all have been through those – hailstorms, tornadoes, Hurricane Ike.”

As for Hurricane Ike in 2008, Miller said it was the largest single storm event in Ohio for Scottsdale’s parent company, Nationwide Insurance.

“It raked up through the middle of the country and when it got to Ohio the winds were still 60 to 70 miles an hour. So a lot of roof damage etc.,” he said. But, “that’s what we’re in the business of.”

It’s when losses occur that the insurance industry gets an opportunity to prove itself.

“When claims happen, bad things happen to people, we step in,” Miller said. “We don’t sell much; we sell a promise – a piece of paper that says ‘we promise.’ And I think it’s really important that when it comes time to fulfill that promise we’re there to take care of things.”

Going Forward

Miller pointed out influences that could affect the E&S marketplace going forward include interest rates, healthcare reform, stock market performance and inflation.

In his view for the next 18 to 24 months, rising interest rates and inflation won’t be a great concern.

Healthcare, Miller said, is important because as an industry “we spend a lot of money on health-related injuries. So how healthcare plays out has a direct influence on … injury type claims.”

Instead of just trying to get rid of the Affordable Care Act, however, Miller said it’s more important to spend the time and energy to adjust, amend and improve it.

The influence of the stock market on the insurance industry is probably more psychological than real, Miller said, because insurance companies typically don’t invest a lot in the stock market.

“But the stock market performance does have a lot of impact on our market because it generates a lot of economic activity,” Miller said.

(This article was originally on Insurance Journal’s website. Reporter Stephanie K. Jones in the South Central/Midwest Editor on Insurance Journal. Carrier Management and Insurance Journal are both Wells Media publications.)