Taking Care of Business

The original criteria and objective definition for the Near National Property/Casualty Carriers was established in the Feb. 12, 2007, issue of Insurance Journal. The Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners.

The 11 categories that comprise the system are Nationals, Near Nationals, Super Regionals, Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and companies with less than $1 million in direct written premium.

A company can be assigned to only one category in the Demotech Company Classification System. Therefore, a company not designated as a Near National is assigned to another classification, perhaps National, Super Regional or Regional.

To qualify as a Near National, a carrier must pass the following criteria:

• Write more than $1 million of direct written premium in each of at least 35 states at Dec. 31, 2008.
• Policyholders’ surplus of at least $100 million at Dec. 31, 2008.
• $100 million or more of direct premium at Dec. 31, 2008.
• $50 million or more of net premium at Dec. 31, 2008.
• No line of business greater or equal to 90 percent of direct premium volume at Dec. 31, 2008.
• No state greater or equal to 90 percent of direct premium volume at Dec. 31, 2008.
• May not be a surplus lines carrier, risk retention group, reinsurer or classified as a National.

To develop the list of Near Nationals, Demotech reviewed 2,736 individual property/casualty insurance companies. Only 67 insurers met the criteria to be designated as Near Nationals. The 2009 list of Near Nationals is in the chart on page N11.

While investigating the companies classified as Near Nationals for 2009, Demotech noted several interesting observations. Of the 67 individual carriers that are Near Nationals, 61 are stock companies. All but two of the Near Nationals are members of a group. Thirty-nine of the 67 Near Nationals were also on the 2007 and 2008 lists of Near Nationals.

By count, the 67 Near Nationals comprised slightly more than 2 percent of the 2,736 carriers that were reviewed; however, they wrote slightly more than 9 percent of the 2008 direct premium reported by the property/casualty insurance industry. More impressively, the Near Nationals represented nearly 13 percent of the P/C industry’s reported surplus at year-end 2008. Clearly, this level of presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P/C insurance markets. The Near Nationals facilitate commerce and trade, and are an important component of the total P/C industry.

Specifically, 12 percent of the premium written by Near Nationals is workers’ compensation insurance, permitting employers to provide protection for workers. Another 27 percent of their premium is commercial multi-peril and general liability insurance, permitting businesses to protect their assets and their consumers. Near Nationals also write homeowner’s insurance, personal and commercial auto, and trucking insurance to protect our homes. These lines represented 41 percent of their premium volume.

On the business side, they write much of the surety coverage and bonds necessary to initiate construction projects. Other lines of insurance round out the remaining dollar volume.

In summary, the only thing small about the Near Nationals is their count. The 67 carriers comprising the Near National Company Classification for 2009 are critically important to the P/C insurance industry. The coverages that these 67 carriers write permit consumers and businesses to transfer risk to this remarkably stable group of carriers and thereby facilitate the placement of insurance products necessary to support growth of the U.S. economy.