Surprise! Small Insurers Prosper

The firm said its findings revealed "a little known segment of success in the insurance industry," and said small insurers had thrived in the late '90s, "overcoming predictions of their demise in the shadow of the financial services behemoths," according to spokesman Greg Jones.

Conning said, while many experts questioned the continued viability of small insurers, the group actually grew faster than the largest insurers and achieved better underwriting results during the period 1996-2000.

According to Conning, the consultant's property-casualty strategic study, "Small Insurers: Thriving in the Land of Giants," tells a story that may even surprise many industry analysts.

Conning said financial services convergence, intensifying globalization and burgeoning technology demands were expected to overwhelm small insurance companies.

The company noted that "large insurers that dominate the marketplace appeared poised to use their massive capital resources and powerful economies of scale to extend their marketplace domination.

"However, small insurers are not only surviving but many seem to be thriving," said Jack Gohsler, senior vice president of Conning Research & Consulting Inc., and co-author of the study.

"To understand why," he said, "you have to commit significant effort. There are many small insurers with many different strategies and operating models. Understanding these companies, even determining how many there are, is a daunting task. As a result, small insurers remain a nebulous, little understood and frequently ignored force in the P-C marketplace."

The consultants said that to fill this "information void", they are undertaking a series of studies to better understand small P-C insurers.

Conning said it has created a small insurer universe of 680 companies and established a large insurer benchmark of the 45 largest P-C insurers against which small insurers' performance can be measured.

The first study in the Conning series focuses on underwriting–specifically premium growth and combined ratios.

Conning said the findings on small insurers' premium growth were surprising.

The consultants said they discovered that the small insurer universe also achieved superior underwriting results. Small insurers achieved a five-year average combined ratio of 104.3 percent while the large insurer benchmark group's combined ratio was 106. In fact, small insurers' combined ratios were lower than their large insurer counterparts in each of the five years. These results appear to indicate that the benefit of market focus can overcome scale advantages, Conning said.

The firm said its study looks at the small insurer universe in an effort to understand why it has been successful. Growth and underwriting performance is examined by various size segments, a stock-mutual split, geographical, customer and line of business specialization.

Conning also segregated the universe into eight company types to examine performance and facilitate further analysis of small insurers' strategies.

The Conning consultants cautioned that more analysis of small insurers' performance is merited. For example, they said, when they adjusted the underwriting performance of the small insurer universe to account for product mix, several findings emerged. First, small insurers' performance was still better than their large insurer counterparts but by a lesser margin. Second, the view of some groups' performance changed; small medical malpractice insurers, for example, actually performed better than expected.

The Conning study, "Small Insurers: Thriving in the Land of the Giants" is available from Conning Research & Consulting Inc. for $2,500 by calling toll free (888) 707-1177 or (860) 520-1521. A complete listing of all Conning strategic studies can is also on the firm's Web site, www.conning.com.