Property/casualty insurance covers the property and liability losses of businesses and individuals. These losses range from damage and injuries resulting from car accidents to the cost of lawsuits stemming from faulty products and alleged professional misconduct. In terms of premiums written, private auto insurance is by far the largest single line, nearly three times greater than the next largest line, homeowners multiple peril. Property/casualty insurance companies tend to specialize in commercial or personal insurance, but some sell both, and some companies have expanded into other financial services sectors, including personal banking and mutual funds.
Property/casualty insurers invest largely in high-quality liquid securities, which can be sold quickly to pay for claims resulting from a major hurricane, earthquake or a man-made disaster such as a terrorist attack.
PROPERTY/CASUALTY INSURER FINANCIAL ASSET DISTRIBUTION, 2007-2011
2013 FINANCIAL RESULTS
Profitability in the property/casualty insurance industry surged to its highest level in the post-crisis era in 2013. Sharply lower catastrophe losses, modestly higher premium growth, improved realized investment gains and favorable prior-year reserve loss development pushed the industry’s return on average surplus to 10.3 percent, up from 6.1 percent in 2012 and just 3.5 percent in 2011, according to data compiled by ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America (PCI). The industry combined ratio in 2013 fell to 96.1 from 102.9 in 2012, leading to an underwriting profit of $15.5 billion. Overall net income after taxes climbed more than 80 percent, to $63.8 billion. Net written premiums rose 4.6 percent, the strongest annual growth recorded since the financial crisis. Policyholders’ surplus rose to a record $653.3 billion as of December 31, 2013—up $66.3 billion, or 11.3 percent, from $587.1 billion as of year-end 2012, according to data from ISO and PCI.
PROPERTY/CASUALTY INSURANCE INDUSTRY INCOME ANALYSIS, 2009-2013 (1)
The ranking below is based on Fortune magazine's annual analysis of the 500 largest U.S. companies, based on revenues. Fortune organizes the 500 companies into broad industry categories. Each company is assigned one category, even though some companies are involved in several industries. For example, some of the leading property/casualty insurance companies also write significant amounts of life insurance.
TOP U.S. PROPERTY/CASUALTY COMPANIES BY REVENUES, 2011 (1)
Agency writers, whose products are sold by independent agents or brokers representing several companies; and direct writers, which sell their own products through captive agents by mail, telephone, the Internet and other means, each account for about half of the property/casualty market. There is a degree of overlap as many insurers use multiple channels.
A.M. Best organizes insurance into two main distribution channels: agency writers and direct writers. Its “agency writers” category includes insurers that distribute through independent agencies, brokers, general agents, and managing general agents. Its “direct writers” category includes insurers that distribute through the Internet, exclusive/captive agents, direct response, and affinity groups such as members of an association.
- In 2011 direct writers accounted for 51.1 percent of P/C insurance net premiums written and agency writers accounted for 46.8 percent, according to A.M. Best.*
- In the personal lines market, direct writers accounted for 71.1 percent of net premiums written in 2011 and agency writers accounted for 28.0 percent. Direct writers accounted for 69.6 percent of the homeowners market and agency writers accounted for 29.0 percent. Direct writers accounted for 71.7 percent of the personal auto market and agency writers accounted for 27.7 percent.*
- Agency writers accounted for 66.8 percent of commercial P/C net premiums written and direct writers accounted for 29.8 percent.*
*Unspecified distribution channels accounted for the remainder.
Traditionally, there has been a distinction between agents and brokers, with agents (whether captive or independent) representing the insurance company and brokers representing the client. Recently, the line between agencies and brokers has blurred, with intermediary firms operating as brokers and agents, depending on their jurisdiction and the type of risk.
PROPERTY/CASUALTY INSURANCE INDUSTRY CONCENTRATION
According to ISO, concentration in the property/casualty insurance sector as measured by the Herfindahl-Hirschman Index increased from 229 in 1980 to 357 in 2008, and then fell, albeit irregularly, to 343 in 2013. The U.S. Department of Justice classifies any market with an HHI under 1,500 as unconcentrated and any market with an HHI over 2,500 as highly concentrated.