Demotech, Inc. Identifies 2011 Near National Property/Casualty Insurers
By Joseph L. Petrelli and Barry J. Koestler II
The original criteria and objective definition for the Near Nationals was established in the February 12, 2007 issue of Insurance Journal. The Demotech Company Classification System categorizes insurers into one of eleven categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners.
The eleven 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, Regional, or State Specialist.
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 December 31, 2010.
- Policyholders’ surplus of at least $100 million at December 31, 2010.
- $100 million or more of direct premium at December 31, 2010.
- $50 million or more of net premium at December 31, 2010.
- No line of business greater or equal to 90 percent of direct premium volume at December 31, 2010.
- No state greater or equal to 90 percent of direct premium volume at December 31, 2010.
- May not be a surplus lines carrier, risk retention group, reinsurer or classified as a National.
To develop our list of Near Nationals, Demotech reviewed 2,748 individual Property and Casualty insurance companies. Only 62 insurers met the criteria to be designated as a Near National.
While investigating the companies classified as Near Nationals for 2011, we noted several interesting observations. Of the 62 individual carriers that were Near Nationals, 54 were stock companies. All but two of the Near Nationals were members of a property and casualty insurance group. Forty-six of the 62 Near Nationals for 2011 were also identified as Near Nationals for 2010 and 2009.
By count, the 62 Near Nationals comprised slightly more than 2 percent of the 2,748 carriers that we reviewed; however, they wrote approximately 8.4 percent of the 2010 direct premium reported by the P&C insurance industry. The Near Nationals also represented more than 7.3 percent of the P&C industry’s reported policyholders’ surplus at year-end 2010. Clearly, this level of presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P&C insurance market. The Near Nationals facilitate commerce and trade, and are an important component of the total P&C industry.
Specifically, more than 13.5 percent of the premium written by Near Nationals was workers’ compensation insurance, permitting employers to provide protection for workers. More than 31 percent of their premium was 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 and allow us to get to work or move goods and services from point to point. These lines represented over 35 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.
To summarize, the only thing small about the Near Nationals is their count. The 62 carriers comprising the Near Nationals for 2011 are critically important to the P&C insurance industry, as demonstrated by their significant market share and impressive balance sheets. The coverages that they 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 potentially support growth in the United States economy.