While many experts have questioned the continued viability of small insurers, this group actually grew faster than the largest insurers and achieved better underwriting results during the period 1996-2000, according to a new study by Conning Research. Conning’s latest property/casualty strategic study, “Small Insurers—Thriving in the Land of Giants,” tells a story that may even surprise many industry experts. Financial services’ convergence, intensifying globalization, and burgeoning technology demands were expected to overwhelm small insurance companies. The large insurers that dominate the marketplace appeared poised to use their massive capital resources and powerful economies of scale to extend their marketplace domination. Conning has created a small insurer universe of 680 companies and established a large insurer benchmark of the 45 largest P/C insurers against which small insurers’ performance can be measured. The first study in their series focuses on underwriting—specifically premium growth and combined ratios. Conning found that between 1996 and 2000, small insurers increased their direct written premiums by 24.7 percent nearly twice the 12.8 percent growth achieved by their large insurer counterparts. As a result, small insurers’ market share grew from 19.4 percent in 1996 to 21.3 percent in 2000. The small insurer universe also achieved superior underwriting results. Small insurers achieved a five-year average combined ratio of 104.3 percent while the large insurer benchmark group’s combined ratio was 106.0 percent. In fact, small insurers’ combined ratios were lower than their large insurer counterparts in each of the five years. These results appear to indicate that the benefit of market focus can overcome scale advantages. The study rigorously examines the small insurer universe in an effort to understand why it has been successful. Growth and underwriting performance is examined by various size segments, a stock—mutual split, geographical, customer and line of business specialization. Conning also segregated the universe into eight company types to examine performance and facilitate further analysis of small insurers’ strategies. Conning cautions that more analysis of small insurers’ performance is merited. For example, when it adjusted the underwriting performance of the small insurer universe to account for product mix, several findings emerged. First, small insurers’ performance was still better than their large insurer counterparts but by a lesser margin. Second, the view of some groups’ performance changed; small medical malpractice insurers, for example, actually performed better than expected.
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