Insurance groups, product diversification, and the role of surplus lines affiliation

The market share of surplus lines insurers has grown considerably. We examine the impact of surplus lines representation within insurer groups on the extent of product diversification. Initial evidence suggests that groups with greater surplus lines representation are more diversified than other groups. These results hold when controlling for the joint impact of surplus lines representation and size, as well as surplus lines representation and the percentage of overall business written in personal lines. However, when examining the subsample of groups affiliated with surplus lines insurers, we find some evidence that supports the product focus hypothesis, which states surplus lines insurers are used to further focus on existing product lines already being written by other members of the group.