Delivering sustained economic value across business cycles is an elusive goal. To understand the “secret sauce” behind high performance, Accenture assessed the performance of the 50 largest P&C carriers in the U.S. market, for both commercial and personal lines, during the 10-year period from 2004 to 2013. The firm then split these results into three distinct market periods: pre-crisis (2004-2007,) crisis (2008-2010,) and post-crisis (2011-2013).
This article focuses on commercial lines and seeks to identify high-performing insurers. For purposes of this study, high performance will be defined in two ways, reflecting distinct strategic approaches to the market.
1. Consistent economic value creation and consistent above market growth. Carriers in this group:
- Consistently produce a combined ratio that generates a return on equity above the cost of equity. Calculating the CR level required to generate economic value includes a number of factors (such as surplus levels and investment income) and yielded a CR threshold of 95 for the 10-year period with varying levels in each year.
- Consistently deliver above market growth.
2. Consistent economic value creation and market sensitive growth. Carriers in this period:
- Consistently produce a combined ratio that generates a return on equity above the cost of equity.
- Grow faster than the overall market in at least one period while avoiding market disruptive exits (defined by direct premium written declines of more than 5%).
To assess consistency,performance was evaluated within three periods with distinct value creation conditions:
| Market Periods | Key Characteristics |
| Pre- Crisis (2004-2007) – Economic Value Creation and Growth | |
|
| Crisis (2008 – 2010) – Risk Aversion, Lower Investment Returns and Declining Rates | |
|
| Post Crisis (2011-2013) – Increased Risk Appetite, Increased Capacity / Competition | |
|
The population analyzed included the 50 largest carriers (based on 2013 DPW) and, while the focus of our analysis is on individual high performers, the study also examines performance in three different size tiers to assess distinct corollaries between size and performance:
- Large carriers with above 2%in market share and more than $5 billion in premium (9 carriers)
- Mid-sized carriers with 1% to 2% in market share and more than $2.5 billion in premium (17 carriers)
- Smaller carriers with less than 1% in market share and $1 to $2.5 billion in premium (24 carriers).
DPW Growth vs. Combined Ratio (by size tiers)
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The implications are clear and can best be described as “too big to succeed, too small to win,” as the large and small carrier segments have struggled in the aggregate and have been out-performed by the mid-sized carrier segment.
In the aggregate, large carriers have consistently operated at a cost structure above the economic value threshold, and the longer term combined ratio level is five points above the threshold, implying consistent value destruction. The small segment is performing even worse, with an average combine ratio approximately seven points above the threshold for driving economic value.
The medium sized carrier segment emerges as the best performing segment, significantly outperforming the other segments by producing economic value and solid growth.
The Envelope Please: The High Performers
Not surprisingly, a larger number of medium sized carriers were able to meet the primary criteria of consistent economic value generation.
Distribution of High Performers by Size Segment
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| Consistent Economic Value Creation and Above Market Growth |
| Consistent Economic Value Creation, Market Sensitive Growth | ||
| Assurant | - Delivered economic value every year - Best 10 year CR (79.2) & 5th CAGR (13.1%) |
| Chubb* | - Cost structure consistently much better than other large carriers - 10 year average CR (88.4) is 10th best |
| AmTrust | - Delivered economic value every year - 9th for 10 year CR (87.4) & 3rd CAGR (17.8%) |
| ACE* | - 14th best cost structure overall and 2nd of large carriers (10 avg. CR of 92.3) - Best and most consistent growth performance of large carriers |
| FM Global | - 2nd best cost structure (10 year avg. CR of 80.1) and economic value every year - Above market average growth |
| Travelers | - 18th best cost structure overall and 3rd of large carriers (10 year average CR 93.3) |
| USAA Group | - Delivered economic value every year - 6th 10 year CR (86.3) & 6th CAGR (11.0%) |
| Erie | - Stable economic value delivery - 13th 10 year CR (91.6) & 25th CAGR (3.7%) |
| Philadelphia – Tokio Marine | - 11th in 10 year CR (89.8) and 8th in 10 year growth CAGR (10.1%) |
| HCC Insurance | - 4th ranked CR (84 10 year avg.) - Above market average growth |
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