I am certain that Erik Erikson, Stella Chess and Jane Whitbread were not thinking of the insurance industry when they wrote this but they could have been. The 25 property/casualty insurers with the largest increase in direct premium written over the three-month period ending March 31, 2007 are capable of heading in any direction they want to go. Clearly, they have selected premium growth.
For the period ending March 31, 2007, the Top 25 P/C insurance companies wrote an additional $2.6 billion in direct written premium over the same three-month period in 2006. The total direct written premium was $19.4 billion versus $16.8 billion in the prior period.
Our review of the reported financial position of the Top 25 indicated that each of the carriers reported sufficient surplus to support this growth. Furthermore, the insurance companies in the Top 25 were owned by, or part of, well-known and highly respected groups. Demotech Inc. will continue to measure and present premium growth by individual carrier, not by group.
Our core belief is that individual companies should be utilized to assess changes in direct written premium. However, group strategy or holding company execution may be measured based on the gain or loss in net writings. This seems reasonable to us because multiple insurance companies within a group exist for tactical reasons. These companies can pool or otherwise share written premium as they choose, however, direct writings provide the appropriate measure for analysis at the company level.
Although some will second guess a strategy that results in substantial premium growth during what is perceived to be a “soft market,” Demotech will withhold judgment. We will wait a few years until the loss and loss adjustment expense reserve development associated with accident year 2007 winds its way through Schedule P, a section of the annual statement that contrasts the most current estimate of accident year losses to the company’s previous estimates for the same accident year.
When year-to-year growth in net written premium exceeds 33 percent, the Insurance Regulatory Information System ratio calculated by the NAIC results in an exceptional (unusual) value. Hence, individual carriers often manage the growth of their net premium written.
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