The Shifting Composition of Reliable Carriers

The industry has just come through the hardest market in 40 years. Premiums have increased fast, growing by almost 40% in the last five years. Carrier profits have been at record highs now for three consecutive years ($398.3 billion in net income). And yet, some companies are so incompetently managed, they have effectively gone backward and have not made any money.

At the agency and insurance distribution level, ask yourself this question: How is a carrier that cannot grow in the most rate inflationary environment in two generations going to help me grow? They clearly do not have some combination of executive abilities, surplus, products, price competitiveness, or talent.

From a carrier perspective, it’s a great time to start poaching key people and accounts, because these losing carriers cannot compete. Many are on a downward spiral.

Here are the facts (all based on net written premium using AM Best data; I have focused on the top 90 carriers by NWP because they write 90% of all premiums):

• 4% of the top 90 carriers had negative growth for two consecutive years ending in 2024. With the hardest market and fastest industry growth in two generations, how they managed to shrink is beyond me.
• 13% had negative growth in 2024, and 16% went backward in 2023.
• The greatest volatility is with carriers ranked 31-50 in market share. The carriers in these two deciles grow and shrink faster and move in and out of the top 50 more often. In other words, the carriers ranked 31-50 are not the same year after year.
• The average NWP of the carriers ranked lower than 200 is only $36 million. That means the largest agents and brokers, as judged by market share, are multiple times larger than carriers, completely shifting the power dynamics. Some of these small carriers are controlled by brokers or even owned by brokers. Does anyone have reason to wonder who gets the best business?

Small Carriers

Small carriers cannot afford losses. Small carriers, captives, risk retention groups (RRGs), and self-insured groups (SIGs) had better be writing the cream. If they are writing the cream, then cumulatively, this is creating adverse selection for the carriers who cannot get their acts together, and considerable evidence exists that many carriers are being saddled with adverse selection.

Small carriers, if not controlled by insurers or brokers, may also be unable to afford the same level of technology, personnel, and reinsurance, and they must avoid being targeted with adverse selection. This is evident when comparing the results between mutual carriers and stock carriers. The stock carriers have far outperformed the mutual carriers in premium growth, surplus growth, and especially profit margins. However, this is not exclusive to small mutuals as described below.

A plethora of small carriers also means a lack of regulatory control. In many areas, these small companies need more regulatory oversight, and DOIs are not adequately staffed to provide it. These small companies cannot afford internal controls unless they achieve far better loss ratios, and if they do, the traditional shrinking companies will be saddled with more and more adverse selection.

These factors are why, even in the hardest of markets, traditional admitted commercial lines did not grow when adjusted for rates. Actually, it shrank. Again, this shows that many admitted carriers are in a downward spiral.

Mutuals

Being small is not the entire story. Some larger mutuals have some of the worst results. There are several notable, very large carriers that have not materially grown in 10 years. If adjusted for inflation, they are approximately 50% smaller than they were 10 years ago, and they are almost never profitable.

Looking into the future, a solid prediction is fairly obvious. Quality carriers with highly competent boards of directors and C-suites, which are more likely to be stock carriers with scale, are far more likely to provide the products, rates, underwriting, and overall competitiveness agencies need. There are a few mutuals, though, that have better C-suites with real directors on their boards who can compete. The others likely will increase the speed of their downward spirals or be sold.

Not All Stock Carriers Win

This is not to say all stock carriers are winners because that is far from the case. What I mentioned previously about admitted commercial carriers going backward if adjusted for rate inflation means that admitted commercial markets, as a whole, have lost their way. They do not offer the required combination of surplus to support growth, rates, underwriting, and definitely product, relative to what surplus lines can provide. Furthermore, fast-growing alternative markets–such as captives, RRGs, SIGs, and association programs–must have a mandate to write only highly profitable accounts in order to survive, much less succeed. This means that, by default, the rest of the market is being adversely selected against.

An indication of the need to improve executive ability is often indicated by the phrase, “There’s no way they [another carrier] can make money at that rate because we certainly can’t.” In some cases, that is true. I believe there is one notable mutual writing at actuarially unsupportable rates currently, especially if property was being written to a true 100% replacement cost. However, quite often, the executive assumes the competitor is writing the same accounts at the same expense ratio, which is not the case. They often have a materially lower expense ratio and/or they are writing better accounts, both resulting in lower rates. Any executive tempted to exclaim the competitor cannot write at such low rates should think twice about whether they know enough about that competitor’s expense structure and the quality of accounts being written.

Moving to Better Carriers

It is safe, though, to conclude the carriers going backward are not writing the best accounts. Agents are moving those to better carriers, which is creating a very slow, at first, downward spiral. Eventually, unless the spiral is stopped early, this will lead to the “Loss of the Certainty Effect,” as described in a paper by two Chubb economists 30 years ago.

As a distributor, you do not want to chain your future to such companies. Get out while you can do it constructively, and don’t believe whatever your carrier reps or executives tell you. The numbers tell a far more accurate story.

Hitch a ride on the carriers that will enhance your growth and profits. And as a side benefit, you’ll discover you don’t really need 50 or 500 carriers.