Conning Finds Small Insurers Retain A Decent Market Share

NU Online News Service, Jan.14, 12:46 p.m. EST

Small insurers retain a sizable share of the overall property and casualty market, and many consistently outperform larger competitors, Conning Research & Consulting reported.

The Conning study found that small companies have success despite a common notion that large companies have a competitive advantage through economies of scale and diversification opportunities that help them reduce risk.

Conning found that small insurers accounted for about 20 percent of total direct premiums written, which the firm said revealed about one point of market share erosion from 2000 to 2008. Despite large insurers increasing market share with acquisitions, small carriers maintain a persistent position with rapid insurer formations and agile moves to fill perceived market gaps, the report said.

Clint Harris, analyst for the Hartford, Conn.-based consulting firm, in a statement noted that small insurers as a group "continue to maintain a sizable share of the property and casualty market."

"As they form and expand to serve unmet needs, small insurers have earned strong positions in some specific markets. Small insurers can pose a significant competitive threat to large insurers because of their ability to build entrenched insurer-client relationships in certain market segments and their ability to develop rapidly in markets with constrained capacity."

The Conning Research study, "Property-Casualty Small Insurers: From Static to Strategic," analyzed the small insurer segment, their strategies for success and their impact on larger insurer strategies.

The report referenced a prior Conning study that found small property and casualty insurers gained market share of nearly two percentage points from 1996 to 2000, while also achieving superior underwriting performance relative to the industry in each of those five years.

Stephan Christiansen, director of research at Conning, said, "Small insurers lost share in 2002 at the beginning of the past hard market, as large insurers were able to tap additional expansion capital more rapidly.

"Yet as the cycle wore on, capital moved toward insurer formations in perceived underserved markets such as medical professional insurance and Florida homeowners. Capital seeks significant returns, and new insurer formations in the right segment will always be a draw for investors and pose an ongoing challenge for larger insurers."

Conning said the 2008 small insurer universe in its study included all insurers with annual premium of less than $1.25 billion.

It excluded those with less than $1 million direct premiums written, those closely affiliated with other property and casualty insurers with a combined premium exceeding $1.25 billion, financial guaranty and mortgage guaranty insurers, title insurers, nontraditional insuring entities, state funds, risk retention groups, limited ownership captives and companies operating only in U.S. territories.

The report was based on data published in the National Association of Insurance Commissioners Annual Statement Database from National Underwriter Insurance Data Services/Highline Data, LLC.

The report can be purchased by calling (888) 707-1177 or online at www.conningresearch.com.