Indeed, more large national multiline companies were in the "bottom group"--the worst performers over a 10-year period studied as a proxy for a cycle--and more single-line, single-state or regional companies were in the top group, Ms. Marshall noted.

The rating analyst and casualty actuaries in the audience stressed, however, that it's an oversimplification to say diversification isn't valuable. Ms. Marshall distinguished "more successful strategies [of] diversifying intentionally and with a comprehensive plan for getting into a new state or a new line," from ad-hoc, soft market strategies to grab bigger pieces of the premium pie.

For example, companies that have traditionally focused on a certain niche and then tried to diversify often end up running into difficulties, one actuary said, stressing that expertise in a diversifying line is critical. Ms. Marshall agreed that the rating agency had seen this particular phenomenon play out in the late 1990s.

"A classic example is a standard company moving into surplus lines" during a soft part of a cycle, another actuary suggested, and Ms. Marshall took note of a number of startup companies that have tried to position themselves to take advantage of the hard market by setting up surplus lines subsidiaries over the past few years.

"It's going to be interesting to see what happens" to those companies, she said.

Referring to the late 1990s expansions, another panelist--Jay Votta, a principal and actuarial practice leader for Ernst & Young in New York--noted that many companies "bought underwriting teams that supposedly had...expertise. But I'm not sure that's what happened," he said, referring to their subsequent poor performance.

Explaining what probably happened, two actuaries in the audience agreed that the acquired teams, in spite of their expertise, simply followed the market down, failing to exercise underwriting discipline. "You don't bring in a new team and say wait two years, one actuary said.

Another audience participant questioned whether longer-term rating agency stress tests might reveal that more diversity does produce better results, noting that the A.M. Best study Ms. Marshall described looked at only 10 years of information.

"For companies diversifying geographically or diversifying from catastrophe-exposed property into other lines, you would hope that over the long term that would be true," Ms. Marshall said. "If you're a Florida homeowners writer, [expanding] into Montana might help, but only if you understand the Montana market, you have an agency force there and you don't have to overpay for that book."

She also confirmed that finding out whether the 10-year period is representative of longer-term trends will be one of the topics Best will investigate in subsequent studies now being planned.

(For more on this story, see the Oct. 12 edition of National Underwriter at www.property-casualty.com.)