Using his firm's scoring method to gauge insurers' financial strength, ALIRT Principal David Paul notes that specialty-insurer composite scores are less volatile than composites for the entire commercial-insurance industry over the long term.
Paul shared the insight when he gave NU a preview of an upcoming presentation he will make at this week's midyear meeting of the Target Markets Program Administrators Association.
Referring to a line graph of historical composite scores—with the TMPAA composite superimposed on top of the commercial-lines composite—he reveals that the TMPAA scores move in a tighter band—with lower high scores and higher low scores over time.
While he speculates that one reason for the flatter TMPAA-score line graph is the absence of carriers like Legion (a program carrier that became insolvent during the last turn) from the database, he believes another reason relates to the nature of specialty business.
“Specialty business is so price-dependent and so underwriting-specific” that the scores really reflect “the ability of the underwriter” to price well and to select risks carefully.
Noting that the graphs also reveal slightly higher scores for TMPAA E&S companies than the TMPAA admitted carriers, he says the relationship makes sense. “They should be stronger, and this shows that they generally are because they don't have the cover of a guaranty fund,” he says. “If you're an E&S writer, you had better have better financials.”
Eyeing those seven scores on the low end of the spectrum, NU asks how many less experienced startup carriers fall in this range. Paul reports that while 14 of the 64 TMPAA carriers (eight admitted and six E&S insurers) included in his analysis have operating histories of five years or less, only two (both admitted) were outsized to the low side with scores of 31 and 36.
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