Top RRGs Prove That All Captives Aren't Evil?

Analysts at SNL Financial ranked the top midsize commercial P/C carriers, and four risk-retention groups made the list. Why?

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance?

It's not the structure of the insurance company that we should credit. It's the line of business it's writing. At least that's the message coming out of the ranking of 2010's top-performing midsize property/casualty carriers, released by Charlottesville, Va.-based market intelligence firm SNL Financial.

So the captive insurance industry--much maligned as of late due to supposedly loosening regulations at onshore domiciles and the group captive meltdown in New York state--shouldn't puff out its chest when it realizes that four risk retention groups (RRGs) were named to SNL's top 20 list.

Those four, and their rankings, are: No. 1, First Medical Insurance Co.; No. 7, American Excess Insurance Exchange (AEIX); No. 10, Ophthalmic Mutual Insurance Co. (OMIC); and, No. 11, Preferred Physicians Medical Risk Retention Group.

The important common denominator among them isn't that they're captives, said Jon Wright, director of the insurance group at SNL Financial.

"When you look at the captives and essentially what kind of business that they write, they're really big writers of commercial medical malpractice," he said.

Commercial med-mal writers in general, Wright explained, have been performing well lately because they've been able to release significant amounts of reserves, with tort reform impacting the line in a positive way. No wonder that, in total, eight of the top 20 performing midsize P/C carriers were focused on writing medical professional liability.

In a quick glance at the OMIC website, a visitor learns that the RRG, which writes professional liability for eye doctors, declared a 10 percent dividend for owner-policyholders renewing in 2011 and a 7.5 percent rate reduction.

AEIX, which provides excess professional and general liability to nonprofit health systems, announced on May 25 that it's distributing $29 million to 16 of its owner-policyholders.

Part of the RRG's success goes beyond just the med-mal lines that it writes, according to president Robert Dowdy, who also serves as president of AEIX's management firm, Premier Insurance Management Services Inc.

"I think it boils down to a commitment by the owners," Dowdy said, which translates to the policyholders being willing to fund risk management initiatives--for obstetrics and emergency rooms, for instance--and benchmarking.

"It's a whole lot easier when you have a committed group of members sitting around the table and nobody wants to get left behind," he told Risk & Insurance?.

The executives at Preferred Physicians Medical, a provider of professional liability insurance for anesthesia practices, pointed to other explanations for its success. In a January 2011 statement commending themselves for a ratings upgrade from A.M. Best, executives pointed to "stringent underwriting standards," a capital management plan geared toward long-term stability and the quality of care of their insured clinicians.

Conceding that some of these RRGs' successes could be attributable to the fact that they're RRGs, Wright noted that these types of captives tend to be monoline writers. As a midsized, monoline, med-mal carrier releasing significant reserves, he reasoned, you could enjoy "outsized" performance relative to peers.

The converse is true too. If you're a monoline offering the "wrong" coverage, you could expect undersized gains. Take workers' comp. You could be a multiline carrier and still get whacked by workers' comp troubles. Only one workers' comp writer made SNL's top 20.

SNL's rankings looked at 255 commercial-focused carriers with statutory surpluses between $50 million and $1 billion. Out of 13 metrics used to determine the rankings, the two most important were return on equity and assets and profitability, according to Wright.

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