Whether its a multistate crop insurer focused on “rural America” or one of three single-state workers compensation carriers, a commercial transportation specialist or a low-value personal auto writer, the top-tier companies almost all define themselves as specialists in some narrow corner of the p-c market.

Among the top 20 on our Profit Leaders list, half write five lines of insurance or less, and six write only a single line of business. Seven of the top 20 write in 10 states or less, with three writing in just one state.

Some of the missions posted on the Web sites of these firms tell a story of even greater focus:

“Specialists in moving and storage insurance exclusively through local independent agents,” the Web site for Westmont, Ill.-based Transguard Insurance and wholesaler Transguard General says in its description.

For Transguardthe second-most profitable insurer on our list80 percent of its 2003 writings were in commercial auto insurance. Lawrence Writt, president and chief executive officer, said that while moving and storage was the companys initial focus, about half the business now relates to small general freight trucking operations, with the other half attributable to moving operations.

“Protecting builders is all we've ever done, and all we ever plan to do,” says Builders Mutual Insurance Company, which grew out of the North Carolina Home Builders Self Insurers Fund, developed by the members of the North Carolina Home Builders Association. Ranked at number eight among NUs Profit Leaders, nearly 70 percent of its insurance business is devoted to workers comp in five states.

“The hazardous workers comp specialists,” at Amerisafe in De Ridder, La., focuses on providing workers comp to loggers, truckers, construction workers and employees in other hazardous occupation classes. One of five workers comp insurers among the top 20, Amerisafe fills the number 12 spot on our list.

“We only offer minimum coverage. Which is good news if youre on a tight budget,” says Columbus, Ohio-based direct writer Safe Auto. The number six-ranked company among NUs Profit Leaders finds its niche in providing less personal auto insurance than other competitors.

There are 14 insurance organizations among the top 20 Profit Leaders that clearly define their business plans within a single narrow specialty nichebased on a limited target market or a limited regional or coverage focus.

Three othersPhiladelphia Insurance, RLI Corp. and Clarendon National Insurance Companydescribe themselves as niche underwriters but focus on a greater number of specialty classes of business. A broad definition of specialty insurer might even encompass the remaining threeProgressive, Mercury Casualty and Commerce, each of which derived 90 percent of its 2003 premiums from personal auto.

The idea that specialists win out over generalists is not new. In fact, back in 1998, National Underwriter reported on research by Hartford-based Conning & Company which demonstrated the same result. (See the NU, Feb. 9, 1998 article describing Connings study, “Structural Change in the Property-Casualty Industry: Where Have All the Flowers Gone?”)

The Conning study used a more rigorous analytical approach, based on 12-year measures of profitoperating ratios measuring both underwriting profit and investment income. Back then, Conning found 16 medical malpractice insurers among the industrys top profit performers.

With times clearly changed (and without investment income included in our principal profit measure), med mal specialists now turn up regularly among the worst profit performers on NUs six-year average combined ratio ranking, proving that specialization isnt the sole answer to the question of how to make an insurance operation profitable. In part, it seems to depend on what an insurer specializes in, and where.

Med mal specialists populate the bottom of the list, with five of the 20 worst performers devoted to the line. Their numbers appear alongside four reinsurers, eight commercial lines generalists, two specialty niche underwriters, and Oregons largest workers comp insurerSAIF Corp. The presence of single-state comp insurers near the very top and bottom of the NUs Profit Leaders list indicates that location is as important as product line.

Above all, an essential ingredient, no doubt, is executionit rests in how a specialty operation implements its business plan.

“I like to say that there are no 90-day wonders at the underwriting desk,” Jonathan Michael, president and CEO of RLI Corp., told NU, sharing one of the secrets of his firms successexperienced underwriting professionals. Set apart from its profitable peers with more product offerings15 products in 52 statesRLIs combined ratio not only ranked among the 30 lowest in each of the six years analyzed by NU, but the group also reported an underwriting profit in 23 of the last 27 years, according to Mr. Michael.

“Theres no magical formula,” said Cole Henry, vice president of the commercial lines division for Philadelphia Insurance. “Its just good old-fashioned, nose-to-the-grindstone hard work.” Like RLI, the companies in Philadelphia Consolidated Holdings group participate in multiple focused nichesand performed even better, garnering a fourth-place rank among NUs Profit Leaders with a six-year average combined ratio of 90.

At Transguard, Mr. Writt said, “its a pretty simple story. Im sure there are a lot of companies that tried to do what we did, and theyre just not executing.” While some insurers are overcapitalized and forced to write more premium, “were disciplined when it comes to writing volume.”

At RLI, Mr. Michael takes particular pride in the groups consistently low combined ratio, reporting that RLI beat the industrywide combined ratio by 12 points over the last 10 years, including Northridge Earthquake loss years. “Underwriting profitability is the lynchpin of our whole business strategy,” he said.

(For more insights from these executives, see the Jan. 31 edition of NU.)

Thirty-six of 194 organizations included in this report averaged under a breakeven (100) combined ratio for the six-year period. But many of the biggest insurance groups were not among the most profitable.

While NU has not performed any rigorous statistical correlation studies on the data, our compilations placed more of the largest insurers among the poorest performers than the smallest.

Among the 50 largest insurance organizations on our list in 2003, only six are also among the 50 most profitable based on six-year average combined ratios. Fourteen of the 50 largest companies were among the least profitable.

Among the 50 smallest, 13 are among the 50 most profitable, and eight among least profitable.

The relationship between premium growth and profitability is even less clear. Not surprisingly, however, companies whose premiums shrank over the six-year period populate the bottom of the profit ranks, as executives at these organizations worked to repair books that produced the worst combined ratios.

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.