National Underwriter - September 19, 2011

Specialty Premium Growth
Outpaces Other Lines

BY PHIL GUSMAN

SPECIALTY INSURERS increased pre- mium at an average 4 percent annual- growth rate over the past five years, beating the industry average, which remained close to flat over that time, a Conning Research & Consulting report says.

Conning says almost 75 percent of insurers in the top underwriting-performance quadrant for the industry are specialty insurers.

The report also says that insurers
are moving toward increasing their
specialty capabilities. This expansion,
Conning says, could improve insurers’
risk diversification, underwriting results
and premium-growth opportunities. But
the firm notes that expansion without
development or acquisition of expertise
“misses the critical success factor associated
with specialization.”
Additionally, Conning says newly
minted specialty insurers may not have
access to smaller specialty markets through
their regular retail-distribution channels
and may not receive adequate support from
wholesalers and managing general agents.

“The third concern is that naive capital could disrupt these markets,” Conning says.

Conning acknowledges that
“specialty insurance” is an “imprecise
and inconsistently defined term and
marketplace.” The report says, “Insurance
professionals and industry analysts use
this and similar terms to describe classes
of insurers, classes of customer markets
and distribution processes. These include,
at times, excess and surplus insurance,
high-risk insurance, customer niches and
also insurance provided by single-product
providers. These markets often overlap, a
factor in the imprecise definition.”
Conning says the sum of specialty
subsegments it analyzed for the report
represented more than 40 percent of P&C
insurance premiums in 2010, with the
high-risk market accounting for about

$70 billion, including $32 billion in E&S premium.

Addressing distribution dynamics in the specialty market, Conning says it has seen “an expansion in the channels, including one high-risk market insurer that expanded into direct online distribution. Some insurers are also offering specialty products and programs to retail distributors, bypassing wholesalers and MGAs. “The condition is exacerbated by a proliferation of online portals funneling business to a number of destinations and bypassing the multitiered specialty-distribution system,” Conning says.

The firm adds that the increase
in specialty products and insurers is
“We see compelling
reasons to drive the growth
of electronically supported
exchanges for specialty
insurance,” Conning says. “The future
could have more transparent products
and pricing and have faster and more
cost-efficient processing.” NU
Insurers are moving toward
increasing their specialty
capabilities, which
could improve insurers’
risk diversification,
underwriting results
and premium-growth
opportunities.

U.S. Still Leads Way For
Gross-Written Premiums

BY MARK E. RUQUET

WITH GLOBAL gross-written premiums (GWP) for the P&C insurance industry standing at $1.15 trillion, the United States still ranks No. 1 in premium volume, but expansion of the marketplace remains a challenge for insurers, according to Aon Benfield.

In its sixth-annual Insurance Risk Study, the reinsurance broker ranks the top-50 global markets by gross-written premium and finds that the U.S. leads the way with $456 billion in P&C GWP, which translates into slightly more than 3 percent insurance penetration (defined as the ratio of premium to GDP).

Second on the list is Japan with $77 billion in GWP. Germany is third at $68 billion, followed by the United Kingdom at $63 billion.

China is ranked sixth at $46 billion in GWP and insurance penetration of less than 1 percent.

While the U.S. is ranked No. 1 in GWP, the nation
of Slovenia has a higher insurance penetration at
close to 4 percent, but it is ranked near the bottom
of the list with P&C GWP of $1.8 billion.

Aon says that international premium growth
“remains a challenge for the industry with none
of the top- 10 countries showing an increase in
insurance penetration.”
Absolute premiums, Aon notes, decreased for
5 of the top- 10 countries, and with the exception
of China, “showed only modest increases in the
others.”
Aon says, “Combined with depressed investment
yields, insurers remain under significant pressure to
expand their top-line results.”
The 26-page report aims to provide benchmarks
for chief risk officers, actuaries and other executives
involved in modeling risk.

The report ranks “global-underwriting volatility
by line of business and by territory,” says Aon, with
property remaining “substantially more volatile than
other major lines.”
“Overall, volatility parameters are in line with
last year’s study—but they do not yet reflect 2011’s
significant catastrophe activity,” says Aon. NU