Property And Casualty Insurance
In 2020, the insurance industry within the United States wrote premiums totaling $1.28 trillion. As many are aware, the industry is comprised of two sectors – Life & Health Insurance (which represents premiums of $624 billion) and Property & Casualty (P&C) insurance (which represents premiums of $653 billion). Within the P&C sector, insurance companies are further divided into two categories, admitted and non-admitted, which is where the differences in the P&C Insurance regulation are most visible.
What is the main issue that Admitted and Non-Admitted companies face?
The main thing that separates admitted and non-admitted companies, and what sometimes creates barriers to entry, is regulation. Regulation of insurance companies can be quite stringent and has proven to be a major challenge for some companies.
Admitted Companies are highly regulated at a state-level and must be approved by each state in order to write business. These companies must file all rates and forms with the department of insurance within the state of writing who then closely and strictly monitor compliance with rates and capital requirements.
As these companies deal directly with the general public, many states impose a very strict approval structure along with highly demanding mechanisms which allow for the protection of consumers. Strict insurance regulation means that admitted companies cannot adapt their policy terms and pricing to fit market environment changes (such as Covid-19) as freely as non-admitted companies.
Non-admitted, or Excess and Surplus lines carriers, are not subject to the same level of regulation. These companies are allowed a significant increase in flexibility in regard to their rates, filings, terms, and conditions. They can provide a service that fills the gap which admitted companies would not be able to fill. For example, non-admitted companies are often able to insure high-risk business that admitted carriers do not have the capacity to cover.
How did Covid-19 impact the non-admitted sector?
Non-admitted insurance is often sold within the program segment. The insurance program segment is made up of program managers, fronting carriers and MGAs, and is further supported by a third-party such as a reinsurance company.
This specific group, in particular MGA’s who participate with the non-admitted companies within the P&C industry, have experienced impressive growth in recent years and faced limited impact during the recent pandemic. Due to Covid-19, many highly regulated, large companies have taken a rather significant hit, further exacerbated by the volatility in the market. MGAs within the non-admitted sector were able to change and adapt to their environment throughout the Covid-19 pandemic and were quick to update their terms and conditions to reflect the changing market. Furthermore, it limited disruption despite rapid market developments. This can be seen in the latest P&C report by S&P 500, where both premiums written and combined ratios appear to be stable.
Due to these factors, reinsurers can influence guidelines, pricing, and claims management. Through a reinsurance intermediary, international reinsurers can access diverse classes of primary business. Significant volume can be written within these classes at low limits. At AM RE, we see the market continuing to evolve as insurance and reinsurance capital becomes increasingly fluid, benefitting reinsurers, institutional investors, and ILS funds.
AM RE Syndicate Inc. focuses on primary program business which provides a predictable return profile which is more stable due to its consistency.