Near National P/C Carriers Identified for 2018

This year marks the 12th year of the Demotech Company Classification System, which was established in the Feb. 12, 2007 issue of Insurance Journal. The 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 can be 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 2018 Near National list, these specific, objective qualifying criteria and thresholds, evaluated as of Dec. 31, 2017, 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;
• No surplus lines carriers, risk retention groups, or reinsurers;
• Does not qualify as a National (more than $1million 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 the list of Near Nationals, Demotech reviewed 2,559 individual property/casualty insurance companies and assigned them to a category in the Demotech Company Classification System. Only 60 insurers met the criteria to be designated a Near National for 2018.

When analyzing the companies classified as Near Nationals for 2018, several interesting items were observed. Of the 60 individual carriers classified as Near Nationals for 2018, 43 were also identified as Near Nationals for 2017 and 2016. Twelve of the companies have been Near Nationals since the introduction of Demotech’s classification system in 2007. The vast majority, 51 of the 60 companies, are stock companies. All but three of the Near Nationals are members of a property/casualty insurance group, with six each from Travelers Group and Berkshire Hathaway, four each from Chubb and Hartford Fire & Casualty, and three each from Horace Mann and XL America. No other group had more than two Near Nationals for 2018.

By count, the 60 Near Nationals comprised just over 2 percent of the 2,559 carriers that were reviewed; however, they wrote approximately 7.6 percent of the 2017 direct premium reported by the P/C insurance industry. The Near Nationals also represented approximately 19.4 percent of the P/C industry’s reported policyholders’ surplus at year-end 2017. Clearly, this level of financial presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P/C insurance market.

In reviewing the 2017 direct premium written by the Near Nationals, there were only five states in which all 60 Near Nationals wrote at least $1 million: Arizona, Colorado, Georgia, Pennsylvania, and Wisconsin. The 2017 direct premium written was distributed evenly between auto, commercial multi-peril/other liability, homeowners/property, and all other lines including workers’ compensation.

Near Nationals may be small in number, however, the 60 carriers comprising the Near Nationals for 2018 are substantial insurers, critically important to the P/C insurance industry, as demonstrated by their significant market share and impressive balance sheets. This remarkably stable group of carriers remains capable of honoring meritorious claims and providing active markets for agents.

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.