The size of a commercial insurance company does not appear to affect premium growth or underwriting profitability for three different lines in that sector, according to a new financial analysis.

That finding came in a report released by the investment firm Stifel Nicolaus, reviewing second-quarter 2008 statutory direct premium and loss data for commercial auto liability, commercial multiple peril and workers' compensation.

Based on figures from Highline Data, a unit of Summit Business Media Co., the parent of National Underwriter, Stifel Nicolaus' analysis found size does not appear to determine superior premium growth or dramatically affect underwriting profitability.

The analysis also found "almost no relationship (yet!) between premium growth and loss ratio deterioration." The results were surprising because the expectation is that companies whose premium base is growing faster would be expected to see a higher deterioration in rates.

Part of the reason, noted Meyer Shields, an analyst for Stifel Nicolaus, is that unlike personal lines insurers who rely upon technology to perform the underwriting, commercial lines are still underwritten individually, "reducing the potential for economies of scale that bigger insurers might use to drive either faster or more profitable premium growth."

He also pointed out that the differences between accounts translate into more attention to underwriting.

Noting the situation with American International Group, Mr. Shields wrote that "people are overestimating the likely outflow of business from AIG, whose property-casualty subsidiaries are more than solvent. We're pointing investors toward smaller commercial competitors, as we see no fundamental underwriting disadvantage inherent in being small, and as even a modest move of share from AIG could represent significant growth opportunity."

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