Near National P/C Carriers Identified for 2016

2016 marks the 10th year of the Demotech Company Classification System, which was established in the Feb. 12, 2007 issue of Insurance Journal. Our 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 classification 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 premium written. A company is assigned to only one category in the Demotech Company Classification System. Therefore, a company not designated as a Near National is assigned another classification, perhaps National, Super Regional, Regional, or State Specialist.

To determine the companies for the 2016 Near National list, these specific, objective qualifying criteria and thresholds, evaluated as of Dec. 31, 2015, were used:

• More than $1 million of direct premium written in each of at least 35 states;
• Policyholders’ surplus of at least $100 million;
• $100 million or more of direct premium;
• $50 million or more of net premium;
• No line of business greater or equal to 90 percent of direct premium volume;
• No state greater or equal to 90 percent of direct premium volume;
• May not be a surplus lines carrier, risk retention group, or reinsurer;
• Does not qualify as a National (more than $1 million of direct premium written in each of at least 45 states, $250 million or more of surplus, net premium written and direct premium written).

To develop our list of Near Nationals, Demotech reviewed 2,612 individual property/casualty insurance companies and assigned them to a category. Only 54 insurers met the criteria to be designated a Near National for 2016.

When analyzing the companies classified as Near Nationals for 2016, we noted several interesting observations. Of the 54 individual carriers classified as Near Nationals for 2016, 37 were also identified as Near Nationals for 2015 and 2014. Twelve of the companies have been Near Nationals since the introduction of our classification system in 2007. The vast majority, 49 of the 54 companies, are stock companies. All but two of the Near Nationals are members of a property/casualty insurance group, with six from Travelers Group, four from Berkshire Hathaway, and three each from Hartford Fire & Casualty, Horace Mann, and XL America. No other group has more than two Near Nationals for 2016.

By count, the 54 Near Nationals comprised just over 2 percent of the 2,612 carriers reviewed; however, they wrote approximately 6.7 percent of the 2015 direct premium reported by the P/C insurance industry. The Near Nationals also represented approximately 16.6 percent of the P/C industry’s reported policyholders’ surplus at year-end 2015. This level of financial presence demonstrates the importance of Near Nationals. They are critical to the smooth function of the P/C insurance market. Near Nationals facilitate commerce and trade, and are an important component of the total P/C industry.

In reviewing the 2015 direct premium written by Near Nationals, there were only six states in which all 54 Near Nationals wrote at least $1 million: Arizona, Georgia, Illinois, Minnesota, Pennsylvania, and Virginia. The 2015 direct premium written was distributed evenly between auto, commercial multi-peril/other liability, homeowners/property, and workers’ compensation.

Near Nationals may be small in number; however, the 54 carriers comprising the Near Nationals for 2016 are substantial insurers, critically important to the industry, as demonstrated by their impressive balance sheets and active markets they provide.

It is important to reiterate that the Demotech Company Classification System is an objective stratification of the companies that comprise the industry based on their business models. It is not equivalent to or suggestive of ratings of the individual insurers. Inclusion on the list of Near Nationals does not imply that a company is superior to companies that were not included in that classification.