This year marks the 13th year of the Demotech Company Classification System, which was established in the Feb. 12, 2007, issue of Insurance Journal. The 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.
The 11 categories that comprise the classification 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 premium written. 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 another classification, perhaps National, Super Regional, or State Specialist.
To determine the companies for the 2019 Near National list, specific, objective qualifying criteria, evaluated as of Dec. 31, 2018, were used:
- More than $1 million of direct premium written in each of at least 35 states
- Policyholders’ surplus of at least $100 million
- $100 million or more of direct premium
- $50 million or more of net premium
- No line of business greater or equal to 90% of direct premium volume
- No state greater or equal to 90% of direct premium volume
- No surplus lines carriers, risk retention groups, or reinsurers
- Does not qualify as a National (more than $1 million of direct premium written in each of at least 45 states, $250 million or more of surplus, net premium written, and direct premium written).
To develop the list of Near Nationals, Demotech reviewed 2,569 property/casualty insurance companies and assigned them to a category in the Demotech Company Classification System. Only 66 insurers met the criteria for a Near National for 2019.
When analyzing the companies classified as Near Nationals, several interesting items were observed. Of the 66 individual carriers classified as Near Nationals for 2019, 43 were also identified as Near Nationals for 2018 and 2017. Twelve of the companies have been Near Nationals since the introduction of the classification system in 2007. The majority, 56 of the 66 companies, are stock companies. All but four of the Near Nationals are members of a property/casualty insurance group, with six each from Travelers Group and Berkshire Hathaway, four from Hartford Fire & Casualty, and three each from AXA and Horace Mann. No other group had more than two Near Nationals for 2019.
By count, the 66 Near Nationals comprised 2.6 percent of the 2,569 carriers that were reviewed; however, they wrote approximately 8.5% of the 2018 direct premium reported by the P/C insurance industry. The Near Nationals also represented approximately 18.8% of the P/C industry’s reported policyholders’ surplus at year-end 2018.
This level of financial presence demonstrates the importance of the Near Nationals. They are critical to the smooth functioning of the P/C insurance market. Near Nationals facilitate commerce and trade, and are important to the total P/C industry.
In reviewing the 2018 direct premium written by the Near Nationals, there were only four states in which all 66 Near Nationals wrote at least $1 million: Arizona, Colorado, Georgia, and Pennsylvania. The 2018 direct premium written was distributed relatively evenly between auto, commercial multi-peril/other liability, homeowners/property, and all other lines, including workers’ compensation. (See the corresponding chart for line of business distribution detail.)
Line of BusinessNear National 2018 Direct Premium Written (000s omitted)Percentage of Near National Total Direct Premium Written
|Line of Business||Direct Premium Written (000s omitted)||Direct Premium Written|
|Commercial Multi-Peril/Other Liability||$13,076,664||23.0%|
|All Other Lines||$3,950,816||7.0%|
Near Nationals represent a small number of carriers; however, the 66 carriers in 2019 are substantial insurers, critically important to the P/C insurance industry, as demonstrated by their significant market share and impressive balance sheets. The coverages that they write permit consumers and businesses to transfer risk and thereby facilitate the placement of insurance products necessary to support the economy. This stable group of carriers remains capable of honoring meritorious claims and providing active markets for agents.
It is important to reiterate that the Demotech Company Classification System is an objective stratification of the companies that comprise the industry based on their business models. It is not equivalent to or suggestive of ratings of the individual insurers. Inclusion on the list of Near Nationals does not imply that a company is superior to companies that were not included in that classification.
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