Annual Rankings Reveal Increased Premiums, But Weaker Profit Picture

Two-thirds of the names on NU's exclusive annual list of the Top 100 P&C insurance groups saw net-premiums written increase in 2010—but combined ratios worsened for almost as many.

Sixty-five out of the 100 groups (ranked by net-premiums written in 2010) recorded premium jumps last year, with just about all of the double-digit leaps explained by acquisitions, not organic growth.

Taken together, the P&C industry overall achieved only 0.7 percent growth in net-premiums written. But that meager rise stopped a three-year slide that began in 2008.

On the profit side, the industry's measure of underwriting profits and losses—the combined ratio—exceeded the breakeven figure of 100 for 57 of the top 100 insurers. A combined ratio essentially compares losses and expenses incurred to premiums, with results over 100 signifying underwriting losses.

For the industry overall, the 2010 combined ratio came in at 102.7, deteriorating nearly two points from the 101.0 level recorded for 2009. The 2010 industry combined-ratio result, which represents roughly $12 billion in pre-tax underwriting losses in aggregate dollars, could have been worse, however.

Based on a compilation of loss-reserve changes contained in insurer annual statements for 2010, a majority of insurers took down reserves for losses that occurred in prior years by $11.8 billion in aggregate, with the cumulative dip into the prior-year cushion benefiting the overall combined ratio by 2.8 points.

BY-LINE BREAKDOWN

A line-of-business analysis reveals that much of the 0.7 percent jump in net-premiums written comes from the industry's two largest lines—private-passenger automobile and homeowners', which together account for 52 percent of industry premiums. Homeowners' net premiums rose 5.1 percent for the industry overall in 2010, and personal-auto net premiums increased 1.7 percent, according to data contained in the Insurance Expense Exhibit of insurers' statutory statements.

Viewed another way, increases for three of the largest personal-lines insurers—State Farm, with a 2.5 percent rise; Progressive, rising 3.4 percent; and USAA, jumping 6.9 percent—boosted premium revenues for the industry overall.

If you take this trio of groups out of the picture, then overall net premiums for the industry as a whole actually would have been flat in 2010.

And if you exclude the premiums from all the writers of the two biggest personal lines, then the net premiums for all the remaining lines fell 1.8 percent, with a 2 percent drop for workers' compensation and a 1.2 percent decline for other liability, explaining much of the overall decline.

The performance of workers' comp and other liability—the industry's two largest commercial lines—also explain much of the deterioration in the industry's combined ratio overall, with comp deteriorating more than eight points to 116.1. The comp ratio, translating to more than $5 billion in pre-tax underwriting losses—was the worst industry comp result recorded since 2001.

Two of the industry's smallest lines—financial guaranty and mortgage guaranty, representing only 1 percent of overall net-premiums written last year—together came in with a combined ratio over 200, representing nearly $7 billion in pre-tax underwriting losses.

Excluding the 1.6 combined ratio points that these two small but deadly guaranty lines add to the industry-wide totals, the resulting 2010 combined ratio for core P&C (non-guaranty) lines is roughly 101.1.

CHARTIS' RESERVE CHARGE: BIG IMPACT ON INDUSTRY NUMBERS

Industry results for 2010 were also distorted by one outlier group, No. 6-ranked Chartis, which went in the opposite direction on prior-year loss reserves than the bulk of its peers—boosting them by $5 billion, while the rest of the industry took down prior-year reserves by $17 billion. As the accompanying chart shows (see page 23), Chartis' $5 billion hike, and a $340 million boost from Allianz, were the only major prior-year reserve increases among the Top-20 groups.

While Chartis has increased prior-year reserves three times in the last six years, with its total reserve changes for those six years combined eclipsing $10 billion, the rest of the industry has harvested more than $52 billion from prior-year reserve cushions over that time, with takedowns of $17 billion in both calendar-year 2009 and 2010.

For Chartis, the most-recent reserve hike (taken in calendar-year 2010) added nearly 25 points to the insurer's calendar-year combined ratio, bringing the figure to 129.2 for 2010—the worst result for any Top-20 insurer.

For the workers' comp and other liability lines, the impact of Chartis' prior-year reserve charges on its own—and the industry's—combined ratios is equally striking. With a $1.8 billion-boost hitting the comp line and $3.0 billion added to Chartis' prior-year reserves for other liability (occurrence-based policies), Chartis' calendar-year comp combined ratio soared to 143.2 and its other-liability ratio to 150.7.

Chartis' comp charge added 3.4 points to the industry-comp combined ratio in 2010, which drops to 112.7 if Chartis is excluded from aggregate figures. And other liability actually looks profitable for the industry minus Chartis, coming in with a 97.8 combined ratio for 2010, rather than 108.2 including Chartis.

In total, Chartis added 1.3 points to the industry combined ratio for all lines taken together. Excluding the impact of Chartis entirely, the industry's 2010 combined-ratio result of 102.7 drops to 101.4. Further excluding the 1.6-point impact of those two pesky guaranty lines brings the core result to a (barely) profitable 99.8 combined ratio.

Still, the most conservative analysts and purists will also want to remove the benefit of the prior-year reserve cushion for the rest of the industry to understand how current accident-year combined ratios are trending. On that score, the industry-booked result comes in at a roughly 104 combined ratio for 2010—0.7 points higher than a 2009 result of 103.3 calculated in the same manner (that is, excluding the impacts of Chartis, industry reserve takedowns and guaranty lines).

PREMIUM-GROWTH LEADERS, LAGGARDS

This year's listings include some new names in the Top-100: Tokio Marine Group, coming in at No. 31; and MAPFRE, ranked No. 37 based on 2010 net-premiums written totals.

Tokio Marine took the elevator up into the Top 100 with its 2008 acquisition of the Philadelphia Insurance Cos. That acquisition is now reflected in the figures compiled by Highline Data, a data affiliate of NU. With the new presentation, Philadelphia, ranked No. 38 in 2009, is now included in Tokio Marine Group, which by itself landed in the 149^th spot in last year's group rankings.

Similarly, MAPFRE's 2009 acquisition of Commerce Group, ranked No. 41 last year, has propelled the group from a rank of 217 in 2009 to its 37^th-place ranking for 2010.

Among the Top-20 insurance groups, Chartis again stands out from the pack, with its 7.1 percent drop in net premiums pushing it from a fourth-place ranking in 2009 to sixth place for 2010.

Related sidebar: Where Does NU Get Its Numbers?

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