To be included in our report, an insurance organization:

Must be an individual insurer that is not part of a larger group or be an organization that reported combined results to regulators in 2003 (combined filers). In some cases, combined filers do not include every company that we might recognize as a member of an insurance group. For example, Zurich Group consists of two combined filersFarmers Insurance Group and Zurich Insurance Co. Group.

Must have reported non-negative combined ratios on its regulatory filings in each of the six years from 1998-2003.

Must have reported net written premiums greater than $100 million in the latest full year.

Must not specialize in lines not traditionally considered property-casualty lines. Specifically, our criteria excluded filers with 75 percent of their 2003 premiums in financial or mortgage guaranty, accident and health, surety, fidelity, or credit lines, dropping 13 insurance organizations which would have otherwise ranked among the top 20.

That limitation, however, was not enough to eliminate the American Express companies (IDS Property Casualty) from contention for the profit title. Indeed, it is the presence of business recorded on the accident and health line that propelled IDS to the top of the list. While accident insurance represents only 25 percent of its business, the combined ratios for the line were low enough (below 40.0 in 2003) to offset results in lines such as personal auto (coming in with roughly a 99 combined ratio in 2003) that would have otherwise landed the credit card giant somewhere between a 30- or 40-place ranking.

Taken together, our criterion reduced the universe of p-c organizations to 194 p-c insurance entities.

Profit Measure:

The starting point of our analysis is the “U.S. Insurance” product of National Underwriter Insurance Data Services, a monthly CD-ROM-based product which compiles annual statement data reported to U.S. insurance regulators.

The database contains variables to allow users to immediately capture six full years of combined ratios for reporting insurance entities, leading us to choose the six-year average combined ratio as the principal measure of profit for our analysis. (While a longer-term average would provide a better picture of long-term profit trends, we worked within the six-year limit to allow NUIDS subscribers to reproduce our results.)

The Profit Leaders tables published in this issue and on our Web site (www.NationalUnderwriter.com) rank the entities based on their six-year average combined ratios from lowest to highest. Six-year averages, however, are not sufficient to isolate insurance organizations that are consistently profitable. (A company reporting three years at a combined ratio of 75 and three at a dismal 125 has a breakeven average.)

With that in mind, we added a volatility measure to our analysis. In addition, weve highlighted consistently stellar performers in green. These cream-of-the-crop insurers reported combined ratios that fell among the 50 lowest in each of the six years studied.

Two-year operating ratios are also displayed on the accompanying charts. These short-term profit indicators include a measure of investment performance. Johnston, R.I.-based commercial property insurer FM Global, and Omaha, Neb.-based Berkshire Hathaway, which reported significant combined ratio swings in 2001 and prior, were the top-ranked and third-ranked entities based on two-year operating ratios.

Proceed With Caution:

Beyond the problems with averages, for some insurers, combined ratios are a particularly poor measure of profitability. One such statistical anomalyDelaware-based Nuclear Electric Insurancewhich had the worst six-year average combined ratio among the groups we analyzed, is actually quite profitable.

Insuring nuclear utilities for the costs of interruptions, decontaminations and other risks, in fact, was such a profitable business in 2003 that Nuclear Electric reported the best loss ratio among all the insurers we analyzed. Distributing high dividends from underwriting and investment earnings, however, is what landed the combined ratio at the bottom of the list.

Combined ratios are only one measure of profitabilityand an imperfect measure of financial strength. Rating agencies, for example, review underwriting profit together with capitalization, parental support, risk management, and other factors before opining on financial strength, and because of the size of the entities included in our list, most of the companies are not rated by the major rating firms.

In compiling our rankings, we have not attempted to analyze financial statements or audit data. As such, we have accepted the data as reported, making no attempt to determine whether loss reserves are sufficient, reinsurance is recoverable, or other items impacting underwriting income are accurately reported. We note that had we performed a similar analysis in the 1990s, Reliance Groupwith combined ratios consistently below 100would likely been listed among the profit leaders before its eventual insolvency.

Cant Find Your Company?

Space is limited in our magazine. So even though our analysis included 194 insurance organizations, only the 50 leaders are published here. To find the rest, go to our Web site at www.NationalUnderwriter.com and click on the “NU Data Insights” icon.

Even there, however, readers wont find one of the largest entities in the p-c worldTravelers Property Casualtyone of the combined filers of St. Paul Travelers group in 2003. Spun off from Citigroup in 2002, the combined ratios for Travelers Property Casualty were not captured in a combined filing for four of the six years used for our analysis.

Recognizing reader interest in the profit position of a $13 billion player in the p-c arena, we performed a supplemental analysis for Travelers. Adding up results for more than 40 individual companies of the most recent Travelers Property Casualty filing, we found that the six-year combined ratio was about 106, a result that would put it about 30 spots above St. Paul. St. Paul ranked No. 149 with a six-year average combined ratio of 110.

Data Source:

National Underwriter Insurance Data Services (formerly Thomson Financial Insurance Solutions and Sheshunoff Information Services) is part of Highline Data LLC, the data affiliate of Highline Media, parent company of this magazine. For information about NUIDS products, contact Chris Rogers at 617-441-5976.

Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.