Premium growth: Should it be measured by company or by group?
Henry Miller, the author of “The Absolute Collective,” once said that “all growth is a leap in the dark, a spontaneous unpremeditated act without the benefit of experience.” Although he spoke of personal growth, I think part of his comment is applicable to writing new business. Specifically, one rarely has “the benefit of experience.” However, I can assure you that the Top 25 companies with the greatest increase in direct premium written were not being spontaneous or unpremeditated. They wanted premium growth and they focused their resources on attaining growth.
For the period ending Dec. 31, 2006, the Top 25 property/casualty insurance companies wrote an additional $10.7 billion in direct written premium over the previous 12-month period. Their total direct written premium was $87.3 billion versus $76.6 billion in the prior period. A list of the Top 25 is presented as part of this report.
Our review of the reported financial position of the Top 25 indicated that each of the carriers reported sufficient surplus to support their growth. Furthermore, the insurance companies in the Top 25 were ultimately owned by, or part of, well-known and highly respected groups. This phenomenon leads some readers to wonder why Demotech Inc. focuses on individual carriers but not on groups. Given that some IJ readers have inquired, I thought I would spend time to address our thought process with regard to individual companies versus groups.
In simplest terms, Demotech Inc. believes that individual companies present the more discernible conduits for assessing changes in direct written premium. We believe that group strategy and holding company execution are measurable on a net basis. In other words, when individual companies grow, they do so by writing direct premium. If they decide to cede some or all of that premium to other members of their group (pool their experience), this is part of a group strategy. Multiple insurance companies within a group exist for tactical reasons and, on a direct basis, writings should be analyzed by company.
Keep in mind that neither the National Association of Insurance Commissioners nor Highline Data endorses any analysis or conclusion based upon the use of its data. When year-to-year growth in net written premium exceeds 33 percent, the Insurance Regulatory Information System ratio, calculated by the NAIC, results in an exceptional (unusual) value. Accordingly, individual carriers often manage the growth of their net premium written.
Joseph L. Petrelli is the president and founder of Demotech Inc., an Insurance Journal official Research Partner. Organized in 1985, Demotech Inc. is a Columbus, Ohio-based financial analysis and actuarial services company. Demotech Inc. provides services to regional insurance companies, title underwriters and specialty insurance markets. Financial Stability Ratings of A or better are accepted by the secondary mortgage marketplace, virtually all mortgage lenders and an increasing number of umbrella insurance markets. Petrelli is a member in good standing of the Casualty Actuarial Society, American Academy of Actuaries and the Conference of Consulting Actuaries. Visit www.demotech.com for additional information.