Three specialty insurance organizations–Philadelphia Insurance, RLI Corp. and Penn America Group–ranked among a dozen property-casualty insurers that National Underwriter magazine identified as candidates for its "Profit Hall of Fame" in its Dec. 3, 2007 edition.
In conjunction with its third-annual publication of p-c insurance "Profit Leaders"–a ranking of the 50 insurers with the lowest six-year average combined ratios–NU sought out "Profit Champions" within the industry. The "Champions" were the 50 p-c insurers with the lowest average combined ratios over a longer period–the twelve years extending from 1995-2006.
While the "Profit Leaders" benefited from hard market conditions that existed during part of the latest six-year period from 2001 to 2006, the "Champions," whose 12-year average combined ratios were the 50 lowest among 184 p-c insurance organizations analyzed by NU, managed to achieved these profitable results over a period spanning hard and soft market conditions.
E&S/specialty insurers were well-represented among the 50 "Champions." Among the specialty groups making the cut were:
o Philadelphia Insurance Companies, ranked No. 6, with a 12-year average combined ratio of 86.3.
o RLI Insurance Group, No. 11, 12-year average of 92.9.
o Alleghany Group, No. 18, 12-year average of 96.0.
o Navigators Insurance Group, No. 20, 12-year average of 96.1.
o United America Indemnity Group's two entities–Penn America Group, No. 22, 12-year average 96.4, and United National, No. 28, 12-year average–96.9.
o Canal Insurance, No. 24, 12-year average–96.8.
o America Modern, No. 26, 12-year average–96.8.
o Markel Insurance Companies, No. 49, 12-year average–98.8.
Shining among our "Champions," a dozen "Profit Hall of Fame" candidates–including Philadelphia Insurance, RLI and Penn America–didn't just have 12-year average combined ratios that were among the lowest we calculated from their financial data. In addition, the combined ratios for each of these "Hall of Fame" contenders ranked among the 50 lowest for at least 10 of the 12 individual years from 1995-2006.
Brief descriptions of some of the top performers over the last 12 years reveal that these long-term champions do not plan to rest on their laurels.
o Philadelphia Insurance Companies
Niche underwriter, Philadelphia Insurance in Bala Cynwyd, Pa., participates in a wide array of specialty insurance niches that includes liability and property package coverages for mental health organizations, hotels, boat dealers, accountants, and nonprofit directors and officers, as well as collector car insurance. Recent additions to the product lineup include museums, day spas and zoos, according to press statements issued by the insurer in the recent months.
Growing from only $62 million in net premiums written in 1995 to nearly $1.3 billion in 2006, Philadelphia's worst combined ratio in the 12-year period–a profitable 93.3–came back in 1999, while its best combined ratio over the period was 68.4 for 2006.
In 1998, Philadelphia stopped offering a package of general liability and property coverage for nursing homes and assisted living facilities, and incurred a loss reserve charge related to that business in 1999.
Philadelphia Insurance, with its track record of profitability unblemished in recent years, was profiled in our inaugural publication of profit leaders. (See NU, Jan. 27, 2005, page 26.)
o RLI Corp.
Chief Executive Officer Jonathan Michael chalks up Peoria, Ill.-based RLI's track record of profits to a unique business model that is centered on hiring and retaining experienced underwriters.
During an interview at the NAPSLO meeting last October that took place before NU's Profit Champions were unveiled, Mr. Michael noted that these experienced underwriters are given the freedom to write the business they specialize in and they're rewarded through an incentive plan that serves up profits from the underwriting pie.
That recipe, Mr. Michael noted, has produced underwriting profits for RLI in 26 of the last 30 years. Chief Operating Officer Michael Stone added that through a new marketing campaign unveiled late last year, the company looks to attract even more talented groups of underwriters with "entrepreneurial zeal and skills in niches" in which the company doesn't currently play.
The new marketing campaign, with its tagline, "Different Works," calls attention to the empowerment of underwriters and RLI's longstanding profit-sharing plans.
"Most of our business leaders want to run their own business. They would like to run their own insurance companies. The problem is they don't have any money. They have skills, contacts, relationships," Mr. Stone said.
RLI, he said, provides the capital, infrastructure, licenses, technology and claims support and enables them "to work at their skill." They run their businesses as they see fit, making all decisions from choosing locations of their offices to setting underwriting guidelines.
Mr. Michael highlighted the simplicity of the firm's incentive bonus plan, distinguishing it from others that might exist.
"We pay a piece of the underwriting profit, period. And on different books, we can develop the business for up to eight years and pay it out over that time period," he said, noting that even if underwriters retire, they can still get paid post-retirement.
In January, after NU's listing of profitable insurers was published, RLI reported a record underwriting result for 2007, with a combined ratio of 71.4 coming in nearly 13 points better than the 84.1 combined ratio, which the company had posted in 2006.
o Penn America Group
A January 2005 merger deal brought two U.S. specialty operating units writing E&S business–Penn America and United National–together under the United America banner. While both ranked among "Profit Champions" in December, CEO Larry Frakes told NU in an October interview that clarifying distinctions between Penn-America and United National is a big part of his mission going forward.
At Penn-America, the focus these days is on managing relationships with a limited agency base, he said, distinguishing Penn-America's signature small binding authority business from United National's core focuses–specialty brokerage business placed through wholesalers and program business written through program administrators.
Mr. Frakes, who took the United America helm in June of last year, said the hiring of Scott McDowell to the position of president at Penn-America in August was the first step.
Mr. McDowell, who had formerly worked at Admiral Insurance Company for 13 years, also has roots in the small account binding authority world, Mr. Frakes said, noting that Mr. McDowell's family at one time owned a general agency that did business with Penn-America.
Mr. Frakes and Mr. McDowell are looking to reestablish historically strong ties with agency partners, Mr. Frakes said, noting that frequent management changes since the merger had been unsettling for agency partners.
In February, United America reported that its combined ratio for all its insurance operations was 88.3 in 2007, compared to 87.5 in 2006, although it did not provide details on results for Penn-America and United National separately. In addition, a new operating unit, Diamond State, was formed late last year. Diamond State will focus on specialty business placed through wholesale brokers, while United National will focus exclusively on the program business market going forward.
For a complete ranking of "Profit Champions" and information on how the list was compiled, see NU's Dec. 4, 2007 print edition, or click the following link:
http://www.propertyandcasualtyinsurancenews.com/cms/NUPC/Weekly%20Issues/Issues/2007/45/Market%20Report/P45PROFITHALL–ss
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