< PreviousCyber Insurance 48BEST’S REVIEW • AUGUST 2022 Cyber exposure may exist through general liability policies or property policies as “silent cyber”—cyberrisk that was unintended or unpriced for. For example, Merck’s claim in the 2017 NotPetya attack represents just that: a cyberattack leading to a claim on a property policy. This begs the question: Can silent cyber be eliminated? A slight majority of the respondents at the Review & Preview conference believe that “No, it can never be completely eliminated.” Even most of those who believe silent cyber could eventually be eliminated think there is still a long way to go. Insurers need to be aware of potential silent cyber exposures in any commercial policy, including general liability, property, and other casualty covers. Severe Impact on Institutions Institutions are particularly vulnerable to ransomware attacks. Lincoln College in Illinois has closed its doors permanently because of an attack on its systems. Hospitals and government institutions are also high on cyber criminals’ lists of potential targets—and Russia’s invasion of Ukraine has sparked further worries about potential attacks on government institutions. An attack on a single government institution could have a far-reaching impact, as the May 2022 attack in Costa Rica by the Conti ransomware group showed. The NotPetya attack demonstrated that what might be intended as a local attack can quickly spread and cause extensive collateral damage. Because of the lack of geographic or political boundaries for these attacks, insurers are focusing on what cyber protections their insureds have in place—as well as what services they can offer to strengthen those protections. Cyber DPW Continues to Grow Cyber direct premiums written have grown steadily since they were first reported in 2015, doubling in the five years from 2015 to 2020 and rising 75% in 2021. The growth was strongest among standalone cyber policies, which were up 95%. Standalone policies have always accounted for a majority of the cyber premium but rose from 60% to 65% of all premium in 2021. Rate increases drove a large part of the premium growth; we expect rates Best’s Rankings US Cyber Insurance – Top 20 Insurers – 2022 Edition Ranked by 2021 total standalone and packaged cybersecurity direct premiums written. ($ millions) Rank20212020 20-21 DPW Market Share% of Cyber DPW 2020 Loss & DCC 2021 Loss & DCC Est. UW Exp. Est. Comb. 20202021CompanyDPWDPWChg (%) (%)StandalonePackagedRatioRatioRatioRatio 11Chubb INA Grp.473.1404.117.19.90.0100.061.076.923.7100.6 82Fairfax Financial (USA) Grp.436.4108.5302.19.1100.00.055.751.922.374.2 23XL Reinsurance America Grp.421.0293.043.78.8100.00.098.286.521.5108.0 114Tokio Marine US PC Grp.249.886.3189.35.277.222.845.543.827.871.6 35American International Grp.240.6228.45.35.099.30.7100.6130.623.6154.2 46Travelers Grp.232.3206.812.34.982.617.485.572.730.5103.2 57Beazley USA Insurance Grp.200.9177.713.04.295.14.947.938.724.262.9 78CNA Insurance Cos.181.4119.651.63.812.587.5106.187.726.9114.6 269Arch Insurance Grp.171.216.0967.33.683.916.124.99.226.735.9 610AXIS US Operations159.1133.619.13.390.59.546.2105.226.0131.2 1311Zurich Insurance US PC Grp.151.964.4135.73.289.910.140.476.922.299.1 1412Liberty Mutual Insurance Co.138.241.9230.22.945.354.730.095.227.2122.4 1213Sompo Holdings US Grp.133.572.683.92.8100.00.0114.154.320.775.0 1014BCS Financial Grp.132.086.652.52.856.943.159.180.127.5107.6 915Hartford Insurance Grp.123.2102.919.72.616.483.629.418.630.749.3 2516Munich-American Holding Corp Cos.120.017.8572.22.53.196.973.869.025.294.2 2017Swiss Reinsurance Grp.103.823.7338.92.2100.00.042.632.731.364.0 2218Alleghany Corporation Grp.88.622.8287.71.993.56.542.820.528.949.4 2919W. R. Berkley Insurance Grp.81.314.7454.51.773.726.36.536.925.562.4 1620Berkshire Hathaway Insurance Grp.70.637.488.81.540.559.525.8-64.717.5-47.3 Top 51,820.91,120.539.038.166.034.078.479.123.3102.3 Top 102,765.81,774.248.657.960.839.275.974.024.798.7 Top 203,908.72,258.967.981.959.041.070.867.924.692.6 Total Standalone3,108.61,618.328.265.172.826.098.8 Total Package1,666.71,135.013.534.959.025.384.3 Total P/C Industry4,775.42,753.473.5100.065.134.967.666.525.391.8 Source: 49BEST’S REVIEW • AUGUST 2022 to continue to rise through 2022. The number of policies in force also grew, mainly standalone policies. Cyber growth is far outpacing that of the overall property/casualty industry. Some of the growth is being driven by the overall hardening of commercial insurance prices owing to inflation fears, fallout from the pandemic, and general weakening of the investment market. However, the pandemic also brought to the fore the change in work environments and a greater need for cyber protection, in both company defenses and cyber insurance. Claims Are Up Through 2018, the majority of cyber-related claims were on packaged policies. However, that changed in 2020, and claims on standalone policies are now the majority—and growing. Standalone policies, with a much smaller share of the overall policy count, are more often subject to claims. These policies are usually purchased by more sophisticated clients with more data and more financial resources. First-party ransomware claims are also growing, both by number of claims and as a share of total claims. Cyber insurance started mainly as third- party coverage to protect against cybercriminals stealing and selling client data. But criminal behavior has shifted in recent years, from stealing data to holding operations hostage. The growth in cryptocurrencies, which are difficult to trace, and the immediacy of payments make ransomware much more attractive for a criminal enterprise. Additionally, the number of claims on standalone first-party policies has grown by an average of 38% over the past five years, compounded by worsening severity as well as the growing sophistication of ransomware criminals—owing to their awareness of victims’ financial wherewithal to optimize their ransomware demands. However, claims frequency as measured by policy count seems to be dropping, although the exposure base for cyber policies is inconsistent. Who’s Insuring Cyber? Chubb remains the largest writer of cyber insurance by premium, while Fairfax has become the second-leading insurer overall and the leading standalone writer, surpassing XL Reinsurance America. Berkshire Hathaway’s acquisition of Alleghany will place the combined group among the top 10 cyber writers. Hartford writes the most cyber insurance policies, outpacing the next three largest writers (Berkshire Hathaway, Farmers Insurance Group, and The Cincinnati Insurance Companies) combined. Definitions of standalone and packaged policies appear to be open to interpretation, and there is ample room for clarity. [The chart on page 48] shows each group’s underwriting expense ratio estimated by using the group’s own underwriting expense ratio for Other Liability–Claims Made business as reported in the Insurance Expense Exhibit (IEE). Based on this estimate, the aggregate combined ratio of the top five insurers by premium exceeds 100. Even more concerning, actual underwriting expenses may be even higher than the overall line. Services provided during the underwriting process—evaluating cyber defenses in place, assisting in upgrading cyber defenses, and warning clients when threats are detected—all drive up underwriting expenses. In light of the high combined ratio, further rate increases in the segment are likely, though we expect the size of the rate increases to moderate. Cyber Data on Captives Is Limited With cyberattacks becoming more complex due to the seemingly never-ending pandemic, and the invasion of Ukraine (among other factors), we expect the cyber market to remain hard for some time. The hardening market and a lack of capacity has made captives an attractive risk management option for corporations. Given their flexibility, captive insurers can customize policies that can mitigate the growing threat of these attacks. As a result, parent organizations can more quickly assess the damage and devise a plan of action toward recovery. Sufficient and reliable cyber data for captive insurers does not exist. With the exception of most risk retention groups, captive insurers do not generally file with the National Association of Insurance Commissioners; their filings are either audited GAAP/IFRS filings or via the shorter versions of statutory filings required by the governing jurisdiction, which do not require insurers to provide data as in the NAIC Cybersecurity and Identity Theft Insurance Coverage Supplement. However, many captive domiciles have shown interest in having captives Cyber Insurance 50BEST’S REVIEW • AUGUST 2022 provide this level of detail, which will improve future transparency. Parent companies or individual members of group captives typically secure such coverage from the commercial market. Given the premium increases in recent years, captive insurers are conducting detailed feasibility analyses and due diligence that will allow them to include at least a manageable layer of cyber coverage for their parents. The parent companies spend millions of dollars on their IT security systems and infrastructure every year, training their staff and requiring strict adherence to cyber policies and procedures from their employees as well as third- party service providers. Given the proximity to their parents (physically, culturally and enterprise-wide), captives can be used as a strategic tool to provide cyber coverage. RRGs and group captives aim to provide their members with a full menu of policy options that include cyber coverage—albeit manageable and limited. Both pure and group captives must understand and appreciate the great complexity that cyber poses and conduct detailed underwriting and risk management on the policies that they would offer. In other words, simply a hard commercial market should not be the main reason to transfer the cyber exposure to the captives. In 2021, based on NAIC data, RRGs wrote approximately $19.0 million in cyber premiums with limited coverage ($50,000 to $250,000). However, some pure captives are writing multimillion-dollar limits and premiums. Captives are using third-party technology and forensic cyber consultants to help with underwriting, with regular monitoring of the parent’s cybersecurity policies, procedures, and testing. Growth of Cyber MGAs/MGUs In recent years, many cyber managing general agents and managing general underwriters have created their own captive or specialty insurers. By doing so, these entities retain a share of each risk they underwrite, fueling additional growth while demonstrating their long-term commitment to underwriting a profitable and sustainable book on a global scale. MGAs and MGUs benefit from working closely with their policyholder and insurance brokers. As a result, they are able to recommend measures for policyholders to improve their cyber profiles and practices, while they work with brokers to create customized coverage. At-Bay, Coalition, Corvus, Cowbell, and Resilience are prominent entities in this area. Comprehensive Risk Management Strategies Are Paramount Given the growing complexity of cyberrisk, cyber insurance is becoming a critical element of businesses’ risk management strategies. As an important part of the ecosystem, insurers will need to develop clear risk appetite guidelines for how much cyberrisk to assume and limits on the nature of the risks underwritten by industry, geography, size of the insured, etc. Underwriting practices need to be clear on a number of risk controls: using multifactor authentication, securing open ports, patching policies, accessing controls, training, etc. MFA has become a minimum necessity for obtaining cyber coverage. Cyberrisk modeling is improving as more data becomes available, and threat vectors are being modeled with stochastic simulations of frequency and severity scenarios. However, these are not anywhere close in maturity to natural catastrophe models, such as those for hurricanes. In addition, there has not been a real-world test of these models, which makes validating them a challenge. Questions such as “What does a 1-in- 100 cyber event look like?” are still hypotheticals. Nevertheless, there is value in modeling since the process of validating assumptions, parameterization, discussion of results, and comparison of events will give insureds—and underwriters—a better understanding of the risks. Insurers can use these models to measure their exposures against their appetites and to determine capital allocations and reinsurance strategies. Regulators around the globe—not just the NAIC—should consider requiring that insurers break out cyber metrics in their financial statements, which will do much to improve accuracy and consistency of these metrics. It will also enable stakeholders to analyze trends and profitability and to develop best cyber practices for a healthier marketplace. BR AM Best TV Visit www.bestreview.com to watch the video about this Best’s Market Segment Report.Best’s Rankings 51BEST’S REVIEW • AUGUST 2022 Best’s Rankings U.S. Property/Casualty – 2021 Direct Premiums Written by Line – 2022 Edition ($ Thousands) Private Passenger Auto Liability$152,917,43319.23.266.057.9State Farm Group00008815.633.9Progressive Ins Group00078014.947.1 No-Fault16,352,8652.0-0.371.259.7Berkshire Hathaway Ins00081118.96.0Progressive Ins Group00078017.55.9 Other Liability136,564,56817.13.665.357.7State Farm Group00008815.630.3Progressive Ins Group00078014.641.2 Homeowners Multiple Peril119,742,72115.08.369.166.8State Farm Group00008818.431.4Allstate Ins Group0000088.825.4 Private Passenger Auto Physical Damage 108,690,75813.66.672.056.0State Farm Group00008816.425.4Berkshire Hathaway Ins00081113.829.2 Other Liability107,122,74913.421.459.163.4Chubb INA Group0184987.730.3Liberty Mutual Ins Cos0000604.611.8 Occurrence64,074,3128.016.261.566.4Assurant P&C Group0185237.452.8Chubb INA Group0184987.317.2 Claims -Made41,734,8195.231.355.757.8XL Reins America Group0185578.545.5Chubb INA Group0184988.212.6 Excess Workers' Compensation1,313,6190.22.041.663.3Tokio Marine US PC Group01873345.05.7W. R. Berkley Ins Group01825216.62.6 Workers' Compensation52,247,1986.52.151.148.9Travelers Group0186746.811.5Hartford Ins Group0000486.324.3 Commercial Multiple Peril 49,969,1146.37.460.261.2Travelers Group0186748.012.9Chubb INA Group0184985.510.2 Non-Liability32,640,6914.17.466.166.5Travelers Group0186747.68.0Chubb INA Group0184987.08.5 Liability17,328,4232.27.549.151.6Travelers Group0186748.64.8Tokio Marine US PC Group0187336.410.8 Commercial Auto Liability41,555,8365.218.566.468.3Progressive Ins Group00078016.614.2Travelers Group0186745.67.5 No-Fault833,5410.1-0.357.955.2Progressive Ins Group00078015.50.3Amer Transit Ins Co0046608.327.3 Other Liability40,722,2955.118.966.668.6Progressive Ins Group00078016.614.0Travelers Group0186745.67.4 Inland Marine29,817,6843.714.949.463.8Liberty Mutual Ins Cos00006013.79.8CNA Ins Cos01831312.228.9 Fire18,961,5202.412.966.461.0FM Global Group0185026.421.6Amer Intl Group0185405.46.9 Allied 18,604,5902.312.077.082.7FM Global Group01850211.538.2Travelers Group0186745.03.0 Mult Peril Crop14,888,3731.937.575.891.2Chubb INA Group01849817.79.7QBE North America Ins Group 00565816.939.9 Comm Auto Phys Damage12,402,1721.612.956.350.9Progressive Ins Group00078014.43.7Travelers Group0186745.32.1 Medical Professional Liability11,214,9891.410.055.257.5Berkshire Hathaway Ins00081117.33.8Doctors Co Ins Group0180839.584.2 Surety7,437,7570.97.317.622.9Liberty Mutual Ins Cos00006012.72.3Travelers Group01867412.73.0 Mortgage Guaranty5,715,8270.7-0.55.435.7Mortgage Guar Group00301419.6100.0Arch Ins Group01848419.521.0 Group Accident & Health 4,988,4560.65.561.366.9Fairfax Financial (USA) Group 00311614.57.6Chubb INA Group0184989.91.8 Farmowners Multiple Peril 4,979,5250.65.164.869.1Nationwide Group00598711.42.9Farm Bureau P&C Group0042337.521.9 Earthquake 4,776,8980.611.42.38.3CA Earthquake Authority01253418.9100.0FM Global Group01850212.110.3 Ocean Marine 4,653,0570.611.552.555.0Amer Intl Group01854015.04.7Berkshire Hathaway Ins0008117.80.7 Product Liability 4,428,3990.64.352.547.5Chubb INA Group01849810.91.8Allianz US PC Ins Companies 0184295.74.5 Warranty 4,085,1190.520.155.356.4AmTrust Group01853322.416.5Courtesy Ins Co01086314.383.1 Federal Flood 3,149,5670.43.447.726.1Wright National Flood Insur- ance Company 01258223.799.7Assurant P&C Group01852316.75.9 Aircraft 2,530,4770.314.553.159.9Starr Intl Group01875617.39.6Amer Intl Group01854012.12.1 Credit 2,510,1360.37.926.457.0Allianz US PC Ins Companies01842915.77.1Great Amer P & C Ins Group 00483512.24.0 Boiler and Machinery 2,392,0020.310.836.155.0FM Global Group01850234.614.8Travelers Group0186746.90.5 Other Accident & Health 2,370,7500.31.677.285.5State Farm Group00008831.51.1CNA Ins Cos01831310.42.0 Fidelity 1,421,9330.27.228.542.9Chubb INA Group01849817.00.9Travelers Group01867416.10.7 Private Crop 1,267,6880.213.688.6126.7Zurich Ins US PC Group01854920.81.8Sompo Hldgs US Group01887815.53.0 Private Flood 1,050,3520.142.943.362.0Zurich Ins US PC Group01854916.11.1Amer Intl Group01854014.91.1 Burglary and Theft 487,8240.17.351.069.6Zurich Ins US PC Group01854916.00.5Travelers Group01867414.40.2 Financial Guaranty 398,0150.0-16.5-91.889.8Assured Guar Group00401773.5100.0Build America Mutual Assur Co 01498112.9100.0 International 52,6490.014.22.0-0.5Chubb INA Group01849870.10.1IAT Ins Group01856726.50.8 Aggregate Write-ins 1,324,2120.2-5.667.870.1XL Reins America Group01855730.25.1Arag Ins Co0107909.8100.0 Total P/C Industry 798,155,779100.09.562.661.2State Farm Group0000888.8100.0Berkshire Hathaway Ins0008116.5100.0 Note: Data for some companies in this report has been received from the NAIC. Reflects Grand Total (includes Canada and U.S. Territories) Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 2022Best’s Rankings 52BEST’S REVIEW • AUGUST 2022 Best’s Rankings U.S. Commercial Multi Peril – 2021 Direct Premiums Written – 2022 Edition ($ Thousands) Best’s Rankings U.S. Homeowners Multiple Peril – 2021 Direct Premiums Written – 2022 Edition ($ Thousands) 2021 Rank 2020 RankCompany/GroupAMB# 2021 Direct Premiums Written % Change in Premiums Market Share (%)Adjusted Loss Ratios% of Company Premiums 202120202019202120202019 11State Farm Group000088$22,046,15511.818.417.817.968.771.558.831.4 22Allstate Ins Group00000810,500,6307.48.88.89.273.454.951.925.4 33Liberty Mutual Ins Cos0000608,382,68210.27.06.96.968.060.751.920.2 44USAA Group0040807,988,4458.56.76.76.676.869.268.431.6 55Farmers Ins Group0000327,608,0356.46.46.56.871.071.740.930.4 66Travelers Group0186745,557,12114.24.64.44.165.960.555.818.0 77Amer Family Ins Group0001245,001,63212.64.24.03.962.462.361.839.8 88Nationwide Group0059873,522,3945.32.93.03.172.575.457.518.1 99Chubb INA Group0184983,210,8743.12.72.82.961.256.462.511.8 1010Progressive Ins Group0007802,217,18816.91.91.71.677.377.267.04.6 1112Erie Ins Group0042831,956,1848.11.61.61.763.962.268.524.9 1211Auto-Owners Ins Group0043541,915,9414.71.61.71.761.162.556.219.3 1313Universal Ins Hldgs Group0187521,582,35210.51.31.31.266.667.282.394.7 1424Citizens Property Ins Corporation0117121,260,86668.11.10.70.544.448.173.869.5 1514Amer Intl Group 0185401,068,007-3.80.91.01.1-13.548.086.37.2 1621Tokio Marine US PC Group0187331,057,31226.90.90.80.776.057.967.710.3 1715CSAA Ins Group0184601,053,6857.40.90.90.961.177.825.125.1 1816Amica Mutual Group018522964,2741.60.80.90.973.563.057.342.4 1919Heritage Ins Hldgs Group018891915,5201.50.80.80.857.753.763.678.1 2018Hartford Ins Group000048909,829-1.80.80.80.946.610.344.06.7 2120Auto Club Enterprises Ins Group018515890,8404.20.70.80.864.242.052.419.1 2217United Ins Group018881814,525-12.90.70.90.8109.084.267.160.7 2328Mercury Gen Group004524810,34320.30.70.60.661.462.653.320.9 2423Assurant P&C Group018523809,2857.30.70.70.744.749.938.69.0 2522COUNTRY Financial PC Group000302792,2125.00.70.70.759.779.965.228.4 Top 25 Writers$92,836,3319.477.576.877.067.764.857.021.5 Total U.S. P/C Industry$119,742,7218.3100.0100.0100.069.166.858.515.0 Reflects Grand Total (includes Canada and U.S. Territories). Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 2022 2021 Rank 2020 RankCompany/GroupAMB# 2021 Direct Premiums Written % Change in Premiums Market Share (%)Adjusted Loss Ratios% of Company Premiums 202120202019202120202019 11Travelers Group018674$3,980,0725.88.08.18.351.050.050.512.9 23Chubb INA Group0184982,769,20913.15.55.35.261.874.261.010.2 32Liberty Mutual Ins Cos0000602,696,1900.35.45.86.050.863.646.36.5 44Nationwide Group0059872,585,3977.35.25.25.469.175.554.913.3 55Hartford Ins Group0000482,382,39410.54.84.64.749.652.252.217.6 66Tokio Marine US PC Group0187332,137,2815.44.34.44.657.155.458.620.8 77State Farm Group0000881,839,3268.33.73.73.792.472.558.02.6 88Farmers Ins Group0000321,660,4074.33.33.43.561.160.849.66.6 99Auto-Owners Ins Group0043541,520,70213.23.02.92.856.060.653.615.3 1010Cincinnati Ins Cos0042941,350,1092.12.72.82.839.963.661.622.5 1111CNA Ins Cos0183131,288,7155.12.62.62.553.066.246.510.2 1212Hanover Ins Group Prop & Cas Cos0048611,228,6805.62.52.52.659.154.547.222.6 1313Erie Ins Group0042831,076,1127.82.22.22.250.542.451.613.7 1414Allstate Ins Group000008958,7090.51.92.12.155.244.546.32.3 1515Amer Intl Group 018540891,2068.31.81.81.571.457.979.66.0 1618Amer Family Ins Group000124843,76512.51.71.61.777.274.779.86.7 1717Berkshire Hathaway Ins000811822,6968.41.71.61.581.073.568.81.6 1816W. R. Berkley Ins Group018252818,0294.71.61.71.763.254.648.69.9 1921Greater NY Group003326710,26716.01.41.31.171.048.549.595.6 2019Zurich Ins US PC Group018549690,339-0.11.41.51.472.373.073.44.6 2122Church Mutual Ins Group018887648,1968.21.31.31.267.980.765.758.1 2223AmTrust Group018533631,15219.81.31.11.173.063.762.711.4 2324Markel Corp Group018468611,65818.01.21.11.8110.880.968.28.2 2425Fairfax Financial (USA) Group003116515,3869.71.01.01.055.664.453.85.4 2526Brotherhood Mutual Ins Co000221502,87012.41.01.00.981.274.664.378.1 Top 25 Writers$35,158,8676.570.471.072.061.461.555.67.8 Total U.S. P/C Industry$49,969,1147.4100.0100.0100.060.161.255.66.3 Reflects Grand Total (includes Canada and U.S. Territories). Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 202253BEST’S REVIEW • AUGUST 2022 2021 Rank 2020 RankCompany/GroupAMB# 2021 Direct Premiums Written % Change in Premiums Market Share (%)Adjusted Loss Ratios% of Company Premiums 202120202019202120202019 11Berkshire Hathaway Ins000811$1,944,10113.417.316.816.948.748.055.33.8 22Doctors Co Ins Group0180831,070,66911.29.69.49.447.145.943.084.2 33ProAssurance Group018559739,157-7.26.67.88.856.258.478.770.3 44CNA Ins Cos018313638,6804.95.76.05.750.370.459.55.1 55Coverys Companies018359574,67710.05.15.15.065.774.063.075.5 67MAG Mutual Companies018940417,94313.23.73.63.455.455.898.790.0 76MCIC Vermont (A RRRG)012014384,988-9.43.44.24.194.685.9105.996.0 88Liberty Mutual Ins Cos000060307,72917.12.72.62.271.572.436.80.7 913Chubb INA Group018498201,43733.21.81.51.4103.8144.938.90.7 109Constellation Ins Group018840187,7758.71.71.71.736.956.063.894.0 1114W. R. Berkley Ins Group018252184,83526.61.71.41.347.047.946.82.2 1211ISMIE Mutual Group018644173,7484.51.61.61.654.350.943.598.8 1310PRI Group018957167,227-1.51.51.71.748.815.9-32.798.5 1412Controlled Risk Ins Co of VT, Inc011814167,0111.61.51.61.752.863.460.690.3 1515Curi Hldgs Group018072159,59214.41.41.41.537.943.642.8100.0 1616Alleghany Corp Group018640153,83414.61.41.31.334.855.949.25.8 1718State Volunteer Mutual Ins Co003706121,8727.21.11.11.227.224.135.599.9 1817Physicians Ins Mutual Group018103118,435-6.21.11.21.154.857.753.386.0 1921Fairfax Financial (USA) Group003116117,74925.11.10.90.845.976.457.31.2 2019COPIC Ins Group018866115,87613.01.01.00.944.634.645.897.6 2120NCMIC Group01857999,5452.70.91.01.049.147.230.776.1 2223Markel Corp Group01846896,36713.00.90.80.937.741.265.51.3 2324Natl Group01824995,18314.70.90.81.032.033.721.1100.0 2426Medical Mutual Group (MD)00500693,46622.50.80.81.063.159.023.799.6 2522Mutual Ins Co of Arizona Group01886789,0414.20.80.80.950.051.430.3100.0 Top 25 Writers$8,420,9378.475.176.276.754.057.157.45.1 Total U.S. P/C Industry$11,214,98910.0100.0100.0100.055.257.558.11.4 Note: Data for some companies in this report has been received from the NAIC. Reflects Grand Total (includes Canada and U.S. Territories). Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 2022 2021 Rank 2020 RankCompany/GroupAMB# 2021 Direct Premiums Written % Change in Premiums Market Share (%)Adjusted Loss Ratios % of Company Premiums 202120202019202120202019 12Progressive Ins Group000780$44,527,90114.214.113.212.366.855.262.292.1 21State Farm Group00008842,500,1053.513.513.914.172.957.561.960.4 33Berkshire Hathaway Ins00081139,104,29411.112.411.912.274.264.672.875.8 44Allstate Ins Group00000828,368,4504.09.09.29.567.952.559.468.5 55USAA Group00408015,738,755-0.25.05.35.177.465.382.062.3 66Liberty Mutual Ins Cos00006015,313,1816.84.94.84.861.657.065.936.9 77Farmers Ins Group00003213,247,2863.94.24.34.662.656.062.153.0 88Travelers Group0186748,301,9217.12.62.62.658.755.363.926.8 99Nationwide Group0059877,248,992-2.52.32.52.763.261.161.137.3 1010Amer Family Ins Group0001245,772,0865.91.81.82.061.655.265.845.9 1111Auto-Owners Ins Group0043544,761,1614.81.51.51.562.060.366.448.0 1212Kemper PC Companies0189084,554,3258.71.41.41.376.259.161.393.3 1313Erie Ins Group0042834,110,9300.71.31.41.368.359.173.852.2 1414Auto Club Enterprises Ins Group0185153,724,6204.41.21.21.272.057.968.679.9 1515CSAA Ins Group0184602,959,0184.80.91.01.056.950.660.870.6 1616Mercury Gen Group0045242,872,8603.30.90.91.059.950.861.674.3 1717Hartford Ins Group0000482,776,2765.20.90.90.958.855.163.320.5 1820Sentry Ins Group0000862,020,65710.20.60.60.660.857.961.366.9 1919Old Republic Ins Group0007342,019,2457.20.60.60.566.573.773.939.2 2018Auto Club Group0003121,945,389-3.80.60.70.865.361.364.569.0 2121Chubb INA Group0184981,792,1586.30.60.60.660.464.058.96.6 2223Hanover Ins Group Prop & Cas Cos0048611,634,1254.00.50.50.650.758.167.830.1 2322Zurich Ins US PC Group0185491,612,363-0.60.50.60.570.576.969.210.7 2424MAPFRE North America Group0188011,486,982-2.60.50.50.658.053.264.865.4 2529Markel Corp Group0184681,442,73327.10.50.40.363.659.853.219.4 Top 25 Writers$259,835,8136.482.382.582.668.358.165.353.7 Total U.S. P/C Industry$315,566,1996.5100.0100.0100.067.758.265.739.5 Reflects Grand Total (includes Canada and U.S. Territories). Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 2022 Best’s Rankings U.S. Total Auto – 2021 Direct Premiums Written – 2022 Edition ($ Thousands) Best’s Rankings U.S. Medical Professional Liability – 2021 Direct Premiums Written – 2022 Edition ($ Thousands)Best’s Rankings 54BEST’S REVIEW • AUGUST 2022 Best’s Rankings U.S. Workers’ Compensation – 2021 Direct Premiums Written – 2022 Edition ($ Thousands) 2021 Rank 2020 RankCompany/GroupAMB# 2021 Direct Premiums Written % Change in Premiums Market Share (%)Adjusted Loss Ratios % of Company Premiums 202120202019202120202019 11Travelers Group018674$3,547,060-5.16.87.37.551.462.650.311.5 22Hartford Ins Group0000483,293,68910.16.35.96.046.449.748.624.3 37AmTrust Group0185332,449,89625.24.73.83.945.935.042.244.1 43Zurich Ins US PC Group0185492,354,376-5.74.54.94.751.748.652.915.7 54Chubb INA Group0184982,203,827-4.04.24.54.343.323.243.28.1 65Liberty Mutual Ins Cos0000602,086,375-6.74.04.44.654.954.444.95.0 76Berkshire Hathaway Ins0008111,927,849-3.53.73.94.145.643.141.93.7 89State Ins Fund WC Fund0040291,733,1047.63.33.23.666.889.070.4100.0 98AF Group0186801,667,442-0.13.23.33.152.956.152.174.6 1010Old Republic Ins Group0007341,292,040-0.82.52.62.555.154.754.625.1 1114State Compensation Ins Fund0040281,235,45114.72.42.12.176.880.538.8100.0 1212Great Amer P & C Ins Group0048351,179,9821.32.32.32.339.940.939.315.5 1313W. R. Berkley Ins Group0182521,139,4014.82.22.12.252.448.745.813.8 1411Amer Intl Group 0185401,103,342-7.22.12.32.690.055.641.47.5 1516TX Mutual Ins Co011453923,4490.01.81.81.947.954.152.3100.0 1617CNA Ins Cos018313842,9703.41.61.61.542.048.540.86.7 1715ICW Pool002967835,665-13.31.61.91.947.243.347.791.1 1818Fairfax Financial (USA) Group003116752,8017.51.41.41.528.931.431.77.9 1920Arch Ins Group018484655,8353.81.31.21.145.644.051.612.3 2019Starr Intl Group018756589,005-11.11.11.31.266.737.125.712.9 2124Markel Corp Group018468585,00617.51.11.01.046.840.638.97.9 2221Employers Ins Group018602582,6082.11.11.11.246.239.044.3100.0 2323Pinnacol Assur 003471539,4245.41.01.01.166.860.257.4100.0 2427SAIF Corp003480521,96413.91.00.90.9138.470.790.8100.0 2522CopperPoint Ins Group018724478,237-16.00.91.11.043.842.847.980.8 Top 25 Writers$34,520,7981.166.166.767.852.749.947.112.8 Total U.S. P/C Industry$52,247,1982.1100.0100.0100.051.148.947.66.5 Reflects Grand Total (includes Canada and U.S. Territories). Source: — State/Line (P/C Lines) - P/C, US; data as of June 9, 2022 22.BCRF06AA Get fast, efficient delivery of: • Best’s Credit Ratings • Insurer Financial Data • Insurance Industry News And easily incorporate them into your internal applications. AM BEST’S INSURANCE INFORMATION FEEDS & WEB SERVICES Our Insight, Your Advantage ™ Learn more: sales@ambest.com www.ambest.com • (908) 439-220055BEST’S REVIEW • AUGUST 2022 What AM Best Says AM Best: Legacy Segment Faces Challenges of Inflation and Adoption of IFRS 17 AM Best analysts report that a combination of motivated sellers and active buyers with capital to deploy is expected to keep deal flow in the legacy market buoyant in 2022 and beyond. Editor’s Note: The following is an excerpt from Best’s Special Report: Motivated Sellers and Active Buyers Fuel Buoyant Market for Non-Life Run-Off Reserves. Visit www.ambest. com to access the full report. A ctivity in the global non-life legacy (run-off) insurance market is buoyant. Over recent years, the sector has seen a steady increase in the number of transactions executed. Run-off is no longer seen as an option of last resort and indicative of failed operations. Increasingly, (re) insurers are using the legacy insurance segment as part of their capital and risk management strategies, often for long-tailed insurance liabilities. A multitude of demand and supply-side drivers are fueling the momentum. The current hardening conditions in the live market, demand for greater capital and operational efficiencies and an influx of capital deployed into run-off consolidators are all significant factors. However, competition in the segment is high, and pricing pressures have the potential to weigh on prospective margins. Additionally, uncertainties around reserve adequacy and the impact of social and wider inflationary trends on long-tail liability valuations present headwinds to those operating in the segment. Global Run-Off Reserves Continue to Rise According to PwC’s latest non-life legacy survey—Global Insurance Run-off Survey— global run-off liabilities amounted to USD 860 billion in 2021, and have been increasing over recent years (2018: USD 730 billion). The growth in run-off reserves from discontinued business held on the balance sheets of insurers is a strong contributory factor to the currently active legacy market. The survey also identifies the U.S. as the largest single market for run-off reserves, representing 45% of the global estimate. States such as California, Florida and New York are What AM Best Says 56BEST’S REVIEW • AUGUST 2022 among the largest contributors to the total. AM Best notes that the U.S. has long been an active market for legacy insurance transactions, given its size and the unique stock of long-tail reserves built up over time due in significant measure to the role of the U.S. legal system. The UK and Ireland also have a long history in the run-off segment. Similar to the U.S., reserves for asbestos and other industrial exposures have been the subject to legacy transactions for many years. Furthermore, the Reinsurance to Close (RITC) structure within the Lloyd’s market has provided a regular mechanism for syndicates to close older years of account into more recent open years and with third parties. Given the long-duration tail associated with casualty classes, insurance liabilities associated with workers’ compensation, professional liability, asbestos and environmental and other liability lines have comprised the lion’s share of run-off reserves on companies’ balance sheets and are the reserves typically subject to run-off transactions. Rising inflation, driven either by economic or social factors, is adding increasing complexity to the accurate estimation of casualty liabilities, increasing the risk of adverse reserve development for insurers carrying these reserves. This can motivate an insurer and their stakeholders to execute transactions that insulate them from legacy deterioration. On the other hand, property and damage-related classes of business are generally more short-tail in nature, with the final liability and exposure of the insurer determined relatively quickly after the date of loss. These reserves typically do not lead to protracted run-off periods and have historically been less prevalent in run-off transactions. Legacy Market Dynamics: Motivated Sellers The drivers for insurers engaging with the run-off market are numerous. AM Best has observed that capital management, addressing under- performing business segments, operational efficiency, reducing uncertainty and risk management considerations all play a role. In the context of the prolonged low interest rate environment of recent years, there is increased need for insurers to leverage all aspects of their operations to generate returns sufficient to meet their cost of capital. Entering into a transaction to dispose of legacy liabilities is designed to provide the incumbent insurer with finality for the business or portfolio in question. Whether the aim is economic, operational or legal finality, the insurer transfers risk to a counterparty with the transaction. The wider implementation of risk-based regulatory solvency regimes has contributed to greater visibility of capital utilization, allocation and efficiency. Accordingly, the extent to which legacy reserves for discontinued business weigh on insurers’ solvency capital requirements and risk- adjusted returns can be more easily identified, and the potential benefits of entering into a third-party run-off transaction can be better quantified. Capital released following a legacy transaction can be quickly reallocated to business segments more accretive to earnings, and supportive of the organization’s current business strategy. Good pricing conditions in many primary insurance markets underline this benefit, with capital released from legacy business able to be deployed 9 11 7 8 4 32 48 5353 12 0 10 20 30 40 50 60 0 2 4 6 8 10 12 20182019202020212022 Q1 Estimated Gross Liabilities (USD billion)Number of Deals Announced Source: PwC Run-Off –Estimated Gross Liabilities and Number of Deals (2018-2022 Q1)57BEST’S REVIEW • AUGUST 2022 into well-priced business in core segments. The motivation to improve operational efficiency is also a significant driver of demand for legacy transactions. The management of legacy liabilities can be both time consuming and costly for an insurer. Maintaining legacy IT systems and infrastructure is often burdensome, which along with dedicated claims and actuarial resources, can contribute to operational inefficiencies and an earnings drag for an insurer. Additionally, legacy portfolios are often not managed actively, resulting in longer claims settlement times, greater potential for reinsurance disputes and the build-up of additional expenses over the run-off period. Through entering into a run-off transaction, an insurer can often transfer operational responsibility and claims management to the counterparty, providing operational finality. Entering into a legacy transaction also mitigates uncertainty arising from volatile reserving books, or underperforming business segments, providing insurers the ability to “clean up” balance sheets and protect prospective earnings from the adverse deterioration of legacy reserves. In keeping with this, recent efforts in the Lloyd’s market to remediate and strengthen underwriting performance have been a catalyst for Lloyd’s syndicates seeking out solutions for their legacy and underperforming liabilities. Legacy Market Dynamics: Active Buyers and New Market Entrants The legacy market includes traditional reinsurers, such as Berkshire Hathaway Inc.’s National Indemnity Company, and specialist run- off consolidators—companies focused on the acquisition of run-off operations and providing exit solutions to the insurance market. A recent influx of capital into the niche run-off consolidator segment, along with new market entrants, such as the 2020 launch of Marco Capital, is fueling activity in the legacy market. Capital inflows are reflective of market opportunities, given the potential scale of the market and stock of global legacy reserves. Market estimates suggest in excess of USD 5 billion has been contributed to the segment in recent years. While capital providers are diverse in nature, the segment has increasingly seen an influx of private equity and institutional backers attracted by the potential for returns uncorrelated to financial markets and other insurance-linked securities (such as catastrophe bonds). Legacy market participants, both established and recent start-ups, have increasingly sought access to the Lloyd’s market. Performance improvement initiatives within the Lloyd’s market have supported deal flow and the establishment of dedicated RITC syndicates. As of April 2022, there are six specialist RITC syndicates operating at Lloyd’s. This represents a doubling of the number of RITC focused syndicates since 2019, with the entrance of Premia, Compre and most recently Marco Capital. The run-off segment is a competitive marketplace. Successful operators must exhibit pricing discipline, robust due diligence processes and transaction execution capabilities. Furthermore, the ability to meet the counterparty credit requirements of the transaction partner, for example, through the use of a sufficiently rated balance sheet or high quality collateralized solution, is central in demonstrating sufficient financial strength to protect policyholders over the run-off period. Run-off consolidators use several levers to generate value from their acquisitions. The favorable run-off of the reserves acquired is a core profit driver, as are the returns generated on invested assets backing those liabilities. In many cases, operational and claims control is included for portfolios subject to reinsurance solutions, which allows the acquirer to manage the reserves and reinsurance recoveries in a proactive and strategic manner, thereby reducing settlement amounts and costs. The ability to determine the ultimate claims cost accurately is crucial in identifying value opportunities and to protect against the risk of adverse deterioration post-acquisition. Given the long-tail nature of liabilities often subject to legacy transactions, appropriate reserving assumptions are a critical consideration. Current emerging inflationary trends, coupled with social inflation effects, present clear headwinds to the sector’s ability to preserve reserve adequacy over the run- off period. With the recent increase in the capacity deployed, the run-off sector is set to remain highly competitive over the coming years. Ultimately, this Next >