The original criteria and objective definition for Near National insurance carriers was established in the Feb. 12, 2007, issue of Insurance Journal. The Demotech Company Classification System categorizes insurers into one of 11 categories based on an analysis of data reported by the companies to the National Association of Insurance Commissioners (NAIC).
The 11 categories that comprise the system are: Nationals, Near Nationals, Super Regionals, Regionals, State Specialists, Coverage Specialists, Strategic Subsidiaries, Risk Retention Groups, Surplus Lines Carriers, Reinsurers and companies with less than $1 million in direct written premium.
A company can be assigned to only one category in the Demotech Company Classification System. Therefore, a company not designated as a Near National is assigned to another classification, perhaps National, Super Regional, Regional, or State Specialist.
To qualify as a Near National, a carrier must pass the following criteria:
- Write more than $1 million of direct written premium in each of at least 35 states at Dec. 31, 2010;
- Policyholders’ surplus of at least $100 million at Dec. 31, 2010;
- $100 million or more of direct premium at Dec. 31, 2010;
- $50 million or more of net premium at Dec. 31, 2010;
- No line of business greater or equal to 90 percent of direct premium volume at Dec. 31, 2010;
- No state greater or equal to 90 percent of direct premium volume at Dec. 31, 2010; and
- May not be a surplus lines carrier, risk retention group, reinsurer or classified as a National.
To develop this year’s list of Near Nationals, Demotech reviewed 2,748 individual property/casualty insurance companies. Only 62 insurers met the criteria to be designated as a Near National.
While investigating the companies classified as Near Nationals for 2011, Demotech noted several interesting observations. Of the 62 individual carriers that were Near Nationals, 54 were stock companies. All but two of the Near Nationals were members of a P/C insurance group. Forty-six of the 62 Near Nationals for 2011 were also identified as Near Nationals for 2010 and 2009.
By count, the 62 Near Nationals comprised slightly more than 2 percent of the 2,748 carriers that were reviewed; however, they wrote approximately 8.4 percent of the 2010 direct premium reported by the P/C insurance industry.Near Nationals also represented more than 7.3 percent of the P/C industry’s reported policyholders’ surplus at year-end 2010.
This level of presence demonstrates the importance of Near Nationals. They are critical to the smooth functioning of the P/C insurance market. Near Nationals facilitate commerce and trade, and are an important component of the total P/C industry.
Specifically, more than 13.5 percent of the premium written by Near Nationals was workers’ compensation insurance, permitting employers to provide protection for workers. More than 31 percent of their premium was commercial multi-peril and general liability insurance, permitting businesses to protect their assets and their consumers. Near Nationals also write homeowners insurance, personal and commercial auto, and trucking insurance to protect homes and allow individuals to get to work or move goods and services from point to point. These lines represented over 35 percent of their premium volume. On the business side, Near Nationals write much of the surety coverage and bonds necessary to initiate construction projects. Other lines of insurance round out the remaining dollar volume.
To summarize, the only thing small about Near Nationals is their number. The 62 carriers comprising Near Nationals for 2011 are critically important to the P/C insurance industry, as demonstrated by their significant market share and impressive balance sheets. The coverages they write permit consumers and businesses to transfer risk to this remarkably stable group of carriers and thereby facilitate the placement of insurance products necessary to support growth in the United States economy.