Financial Analysis Market Report

Executive Summary

• Premium registered in year-to-date (YTD) 2024 from January to April was $3.9 billion for companies on the LASLI and $2.0 billion for companies not on the LASLI, including $0.7 billion for Lloyd’s syndicates. Compared to the same period in 2023, the 2024 YTD premiums from LASLI companies increased slightly by 0.9% whereas premiums from Non-LASLI companies increased by 21.9%.
• All LASLI insurers with a financial strength rating from AM Best are rated A- (Excellent) or better. Four LASLI groups currently have negative outlooks on their financial strength ratings from AM Best.
• Two LASLI groups received a financial strength rating downgrade with a stable outlook from AM Best—Nationwide Mutual Insurance Company (A/stable) and United Fire Group, Inc. (A-/stable).
• The total number of LASLI companies was 140 as of April 30, 2024, a decline of one from December 31, 2023. The LASLI insurer count reflects the removal of two insurers and the addition of one new insurer during the first four months of 2024. Subsequently, one additional insurer withdrew from the LASLI on May 1, 2024 and one additional insurer was added on May 20, 2024.
• There are 12 LASLI applications in the pipeline for review—one currently with the California Department of Insurance (CDI) and the remaining 11 with the SLA.
• During the first quarter of 2024, Berkshire Hathaway Inc. (Berkshire Hathaway) acquired a significant stake in Chubb Ltd. (Chubb) amounting to about 25.9 million shares valued at approximately $6.72 billion.
• On April 17, 2024, AM Best downgraded the financial strength rating of Rockingham Insurance Company to B++ (Good) from A- (Excellent). On May 1, 2024, Rockingham Insurance Company voluntarily withdrew from the LASLI. On May 8, 2024, AM Best withdrew the B++ (Good) rating as the company requested to no longer participate in AM Best’s interactive rating process.

Premium Registered – 2024 (January Through April)

¹ Totals may not equal the sum of components due to rounding.

• Total premium and fees registered for the first four months of 2024 increased 7.3% compared to the same period prior year.
• Premium registered from LASLI insurers was primarily from US ($3.7 billion) versus Non-US ($0.2 billion) companies.
• The count of LASLI insurers was 140 as of April 30, 2024, up by three from 137 as of April 30, 2023.
• Premium registered from Non-LASLI insurers through April 2024 consisted of a significant portion from US insurers ($1.0 billion, up 52.1% from $0.7 billion in the same period for 2023).
• Besides Lloyd’s, the three largest Non-LASLI insurers by premiums registered are Mobilitas Insurance Company of Arizona (US; $201.6 million), Blue Hill Specialty Insurance Company Inc. (US; $101.3 million), and Kinsale Insurance Company (US; $100.5 million). Other Non-LASLI insurers with significant premium registered include Palomar Excess and Surplus Insurance Company (US; $61.8 million), Accelerant Specialty Insurance Company (US; $61.1 million), Trisura Specialty Insurance Company (US; $55.9 million), and Southlake Specialty Insurance Company (US; $51.1 million).
• Mobilitas Insurance Company of Arizona, which is part of the CSAA Insurance Group, commenced business in December 2021. California premium registered for the company grew significantly to $201.6 million during the first four months of 2024 from $1.2 million registered for the same period in 2023. Mobilitas Insurance Company of Arizona is part of the AM Best rating unit, CSAA Insurance Group, which has a financial strength rating of A (Excellent) from AM Best.
• SLA Financial Analysis Department monitors LASLI insurers closely—a benefit to the broker community and California home state insureds—while the monitoring/review of Non-LASLI insurers with significant California market presence are more limited in scope.

LASLI Applicants

CDI FAD – the Financial Analysis Division of the California Department of Insurance

• The CDI is reviewing one LASLI application and the SLA is reviewing 11 other LASLI applications.
• Two LASLI applicants were added to the LASLI since January 1, 2024.

LASLI Withdrawals Since NRRA in 2011

• Two LASLI withdrawals occurred during the first four months of 2024: ProAssurance Casualty Company (but with a removal effective date of December 31, 2023) and North American Capacity Insurance Company (removal effective date of January 1, 2024). Subsequently, one insurer—Rockingham Insurance Company—withdrew from the LASLI on May 1, 2024.

Premium Registered by AM Best Financial Strength Rating January Through April 2024

Charts exclude premiums in suspense and other premiums that are not allocated to a company.

• The overall credit quality of rated LASLI companies is strong, with an AM Best financial strength rating of Excellent or Superior. The top operating groups with LASLI subsidiaries having A++ financial strength ratings are Berkshire Hathaway, Chubb, and Tokio Marine Holdings, Inc.
• Non-LASLI US insurers accounted for $1.0 billion (17.7% market share) of the 2024 YTD premium and fees registered, making it the largest portion of the Non-LASLI category. Premium registered from Non-LASLI US insurers during the first four months of 2024 grew by 52.1% over the $0.7 billion (12.5% market share) for the same period in 2023.
• Lloyd’s syndicates, including those with missing or invalid syndicate numbers, wrote $0.7 billion (12.4% market share) of the 2024 YTD premium and fees registered, making it the second largest portion of the Non-LASLI category. All Lloyd’s syndicates reflect the Lloyd’s market AM Best financial strength rating of A.

AM Best Financial Strength Rating Actions and Outlook/Implication LASLI Insurers – 2023 and YTD 2024

¹ AMB financial strength ratings, actions and outlook/implication per AM Best as of May 22, 2024. Ratings “under review” have a “u” indicator after the rating. Rating is for the AMB rating unit that includes the LASLI company.
² Ultimate parent as of May 22, 2024
³ Premiums registered through April 30, 2024
⁴ American Inter-Fidelity Exchange (AIFE) does not have an ultimate parent. AIFE is owned by its subscribers. AIFE’s attorney-in-fact is American Inter-Fidelity Corporation.

In addition to the assignment of a financial strength rating, AM Best includes a rating outlook (stable, negative, or positive) indicating the potential future direction of the rating over an intermediate term (about 36 months). For ratings under review, the potential future direction is called a rating implication (negative, developing, and positive) and the forward-looking timeframe is more near-term (typically six months).

• Most insurers have AM Best ratings with a stable outlook, with most ratings affirmed stable (82.2% of YTD 2024 premium registered).
• Six groups and their respective LASLI companies with a financial strength rating upgrade were as follows:
  • Fairfax Financial Holdings Limited (Fairfax)/Hudson Excess Insurance Company, Hilltop Specialty Insurance Company (A+): Upgrade for certain Fairfax companies as part of the Odyssey Group Holdings, Inc. rating unit. The rating upgrades recognize the removal of ratings drag from Odyssey Group’s parent company, Fairfax, which has demonstrated sustained improvement in its overall credit profile in recent years (by reducing debt leverage materially and improving overall operating performance, while maintaining consistently sound balance sheet strength and financial flexibility).
  • Assurant, Inc./Voyager Indemnity Insurance Company (A+): Upgrade reflects an improved assessment of the Assurant P&C Group’s balance sheet strength, which is currently very strong. The rating action also considers the group’s very strong earnings power, strong positive cash flows, and new capital formation—the majority of which is derived from low-risk businesses, with limited volatility. The Assurant P&C Group’s ratings reflect very strong balance sheet strength, strong operating performance, favorable business profile, and appropriate enterprise risk management.
  • Blue Cross Blue Shield of Michigan Mutual Insurance Company/Century Surety Company (A): Upgrade reflects AmeriTrust Group, Inc.’s (AmeriTrust) substantially complete integration and increased strategic importance to Accident Fund Insurance Company of America (Accident Fund), a member of the AF Group whose parent company is Blue Cross Blue Shield of Michigan Mutual Insurance Company. Accident Fund has actively integrated AmeriTrust into its operation since the completion of its acquisition of AmeriTrust in January 2023.
  • MS&AD Insurance Group Holdings, Inc./MS Transverse Specialty Insurance Company (A): Upgrade reflects the significance of the unconditional financial guarantee agreement put in place in 2023 by Mitsui Sumitomo Insurance Company, Ltd. (MSI), the lead insurance entity of MS&AD Insurance Group Holdings Inc, as well as the increased operational integration with the North American subsidiaries of MSI. The agreement confirms MSI’s commitment to support MS Transverse Insurance Group’s (MS Transverse) growth opportunities in the US managing general agent fronting market. The rating also reflects MS Transverse’s very strong balance sheet strength, adequate operating performance, limited business profile, and appropriate enterprise risk management.
  • Hamilton Insurance Group, Ltd/Hamilton Insurance DAC (A): Upgrade reflects Hamilton’s trend of increasingly favorable underwriting results, leading to organic capital generation, increased stability and overall balance sheet strength. Hamilton has shown improving underwriting results consistently over the past five-year period while conservatively reserving, with a five-year net favorable reserve development, outperforming peers.
  • ProAssurance Corporation/NORCAL Specialty Insurance Company (A): Upgrade reflects the implicit and explicit support provided by the ProAssurance Group following management’s integration efforts since its acquisition of NORCAL Insurance Company (NORCAL) in 2021. Also considered is NORCAL and its subsidiaries’ (which includes NORCAL Specialty Insurance Company) strategic importance to the group, common management, and significant earnings contributions.
• Two groups and their respective LASLI companies with a financial strength rating downgrade were as follows:
  • Nationwide Mutual Insurance Company/Scottsdale Insurance Company, Harleysville Insurance Company of New York (A): Downgrade from A+ (Superior) reflects the revision of the Nationwide P&C Group’s business profile assessment to neutral from favorable. The rating action was driven by operating results, which have been persistently below its peers and benchmarks, as well as the Nationwide P&C Group’s strategy to de-emphasize less profitable personal and commercial lines of business and focus on more specialized products. While this strategy will reduce Nationwide’s footprint and weaken its market share, brand recognition remains strong, and the organization intends to achieve profitable business growth in specialty lines. The Nationwide P&C Group’s ratings reflect very strong balance sheet strength, marginal operating performance, neutral business profile, and appropriate enterprise risk management.
  • United Fire Group, Inc./Mercer Insurance Company (A-): Downgrade from A (Excellent) was driven by the downturn in the United Fire & Casualty Group’s operating performance through June 30, 2023, which included $53.0 million in reserve strengthening across multiple casualty lines and across multiple accident years, elevated catastrophe losses, a small number of large surety losses, and the impact of surety reinsurance reinstatement premiums. The United Fire & Casualty Group’s ratings reflect very strong balance sheet strength, marginal operating performance, neutral business profile, and appropriate enterprise risk management.

• Six groups and their respective LASLI insurers with affirmed ratings and positive outlooks were as follows:
  • Fairfax Financial Holdings Limited (Fairfax)/Allied World National Assurance Company, Allied World Surplus Lines Insurance Company (A): Outlook revision to positive from stable reflects Allied World Holdings Group’s sustained improvement in overall operating performance, which has stabilized at improved levels for the past several years. AM Best views the group’s solid recent and prospective underwriting results as reflective of sound cycle management strategies that have reduced volatility, while at the same time steadily increasing underwriting income. The group’s operating earnings will also continue to benefit from significantly higher investment income due to Fairfax’s material deployment of cash into highly rated fixed income investments that have seen yields rise in the higher interest rate environment. The Allied World Holdings Group’s ratings reflect strongest balance sheet strength, adequate operating performance, favorable business profile, and appropriate enterprise risk management.
  • International Financial Group, Inc./The Burlington Insurance Company (A): Positive outlook is driven by the IFG Companies’ (IFG) operating performance, which has shown sustained improvement in underwriting and operating profitability since 2021. Over the past few years, the group has seen healthy growth in premiums, while keeping pace with inflationary pressures and rising total insured values. The group also has been the beneficiary of high persistency, adherence to price adequacy, minimal volatility, favorable loss reserve development, and disciplined expense management. The culmination of these factors has contributed to IFG’s ability to perform at levels more in line with its higher-assessed peers over the past couple of years.
  • Core Specialty Insurance Holdings, Inc. (Core Specialty)/Starstone Specialty Insurance Company (A-): Positive outlook remain unchanged following the announcement (in March 2024) that Core Specialty has agreed to a transfer of most of the P&C business from American National Group’s Specialty Markets Group. The transaction involves a transfer of related unearned premiums to Core Specialty, as well as renewal rights for most of American National’s Specialty Markets Group. No operating entities are to be transferred in this transaction. The business consists of credit-related insurance products such as collateral protection, mortgage security, and guaranteed asset protection. This transaction is anticipated to take place over the course of the year, as Core Specialty works to establish all the required licensing to write business directly. American National will act as a fronting carrier, for a fee, until Core Specialty receives the appropriate licensing. Furthermore, most of the staff supporting this business will transfer over to Core Specialty as part of the transaction.
  • Brookfield Reinsurance Ltd./Colony Insurance Company, Peleus Insurance Company (A-): The rating of Argo Group International Holdings, Inc. (Argo Group) was previously placed under review with developing implications on November 30, 2023 in response to the recently announced completion of the group’s acquisition by Brookfield Reinsurance Ltd. The positive outlook reflects the belief that operating results should improve within the intermediate term as Argo Group works through various underwriting actions and works to reduce volatility across core lines of business. The group is committed to implementing additional controls and is taking a disciplined approach to writing new business. Although this has tempered premiums written, it should lead to a return to profitability and ensure future capital growth. Furthermore, the balance sheet and holding company assessments are supported by the strong level of risk-adjusted capitalization and appropriate leverage and coverage ratios.
  • Skyward Specialty Insurance Group, Inc./Houston Specialty Insurance Company (A-): Positive outlook is driven by the group’s operating performance, which is reflective of a sustained trend of improving underwriting results since 2020 following a change in executive leadership, as well as consistent investment income. Following a period of underwriting volatility, management instituted several correcting initiatives to refine its underwriting focus and risk selections as a specialty lines writer, and improved underwriting profitability has been noted since that time in its targeted niches. The group also has benefited from numerous parental capital contributions to support its operations.
  • American Inter-Fidelity Exchange (AIFE) (A-): Outlook revision to positive from stable reflects AIFE’s strong organic surplus growth over the previous five-year period, further enhancing its very strong balance sheet strength. The improvement is largely the result of AIFE’s declining tail exposure as, beginning in 2018, the company embarked on a transition towards predominantly auto physical damage, which management felt would result in greater profitability with less volatility compared to that book of business concentrated in commercial auto liability. The shift has led to consistent levels of favorable reserve development over the most recent five-year as commercial auto liability exposures run off. Since implementing its new underwriting strategy, overall profitability has improved dramatically and has consistently contributed to AIFE’s surplus growth.

• Four groups and their respective LASLI companies with affirmed ratings and negative outlooks were as follows:
  • McCarthy Group, LLC/Summit Specialty Insurance Company (A): Outlook revision to negative from stable reflects AM Best’s concerns over ReAlign Insurance Group’s unfavorable operating performance in recent years, which was driven by a deterioration in underwriting results. This deterioration was attributable to an elevated level of fire and weather-related losses. In 2022 and through the first half of 2023, the group’s underwriting results were driven by an increase in both severity and frequency of losses. Inflationary pressures have also impacted results with considerable loss cost increases. As a result, the group has required capital contributions from the parent in support of its expansion plans. While management’s actions (i.e., addressing volatility through rate increases, aggressive re-underwriting of book of business, non-renewing of risks in certain territories, and increasing mandatory deductibles in weather prone areas) may result in stabilization of recent trends, failure to execute on these strategic plans could result in a downward revision of the group’s adequate operating performance assessment.
  • James River Group Holdings, Ltd./James River Insurance Company (A-): Outlook revision to negative from stable follows the group’s recent announcements that it has identified a material weakness in its internal control over financial reporting, it will sell JRG Reinsurance Company, Ltd., and it will explore strategic business alternatives for the organization. As part of this process, the board stated that it will consider a wide range of options including, among other things, a potential sale, merger, or other strategic action. The negative outlook reflects the uncertainty that these announcements will have on the organization, whilst also reflecting the execution risk associated with some of these initiatives.
  • GuideOne Mutual Holding Company/GuideOne National Insurance Company (A-): Rating affirmed with negative outlook and removed from under review with negative implications following a strategic capital investment of $200 million made by Bain Capital Insurance (Bain), which closed on December 29, 2023. The investment puts GuideOne in a much stronger capital position following significant surplus deterioration in 2022, driven by a net loss along with unrealized capital losses, as well as some deterioration through third quarter 2023 due to continued underwriting losses and other losses. The negative outlook reflects the continued pressure on GuideOne’s balance sheet strength assessment as unprofitable underwriting performance related to the specialty business has negatively impacted its capital levels in recent years. AM Best recognizes the significant actions the group has recently taken, including the exit of the specialty business, to improve its capital position and underwriting results.
  • Cornell Capital GP II GP LLC/Vault E&S Insurance Company (A-): Negative outlook due to continued operating volatility, which has led to consistent underwriting and pretax operating losses on a statutory and adjusted basis since inception. The outlook considers the impact of the recently implemented reinsurance program. While it is anticipated that the reinsurance program will reduce the severity of losses, underlying challenges remain that management is addressing through several corrective actions. The group also is expected to manage anticipated growth effectively as it pertains to risk accumulations, the influence of current weather patterns, and financial performance.

Hot Topics – Merger Activity

¹ Information as of 4/30/2024
Note: Names of LASLI Subsidiaries or Applicants are followed by either a (T) for Target or an (A) for Acquirer. LASLI/Eligible Subsidiaries includes LASLI companies but excludes Lloyd’s Syndicates and NRRA eligible subsidiaries with premium registered below a minimum threshold.

• Argo Group: On November 16, 2023, Brookfield Reinsurance Ltd. completed its acquisition of the Argo Group in an all-cash transaction valued at approximately $1.1 billion. The Argo Group owns Colony Insurance Company and Peleus Insurance Company—both currently on the LASLI.

Hot Topics – Developing

• Berkshire Hathaway Inc./Chubb Ltd: During the first quarter of 2024, Berkshire Hathaway acquired a significant stake in Chubb amounting to 25.9 million shares valued at approximately $6.72 billion. Berkshire Hathaway’s holdings of 25.9 million shares represent about 6% of Chubb’s number of outstanding shares as of the end of March 2024.
• Change in Financial Condition of Several Surplus Line Insurers: Recently, several surplus lines insurers experienced a change in financial condition resulting in them exiting the California surplus lines market. Insurers exiting the California surplus lines market were Hallmark Specialty Insurance Company, Rockingham Insurance Company, and Conifer Insurance Company.
  • Hallmark Specialty Insurance Company: AM Best downgraded and withdrew credit ratings of Hallmark Financial Services, Inc. and its subsidiaries (collectively Hallmark) in May 2023. The rating actions took into consideration the significant declines in Hallmark’s balance sheet strength and operating performance due to continued adverse reserve development in the group’s retained discontinued commercial auto lines. On May 10, 2023, the company voluntarily withdrew from the LASLI.
  • Rockingham Insurance Company: The company will return toward its roots as a regional niche personal lines-focused insurer following the downgrade of its financial strength rating by AM Best. The company had launched its excess-and-surplus lines platform in 2019 as a way to diversify its business mix, but sizable underwriting losses across its portfolio in 2022 and 2023 led to surplus erosion material enough that it is required to submit a corrective action plan to the Virginia State Corporation Commission’s Bureau of Insurance. AM Best cited the “progressive erosion of the group’s capital position” in issuing the downgrade. Following the AM Best downgrade, the company requested to withdraw from the rating process. On May 1, 2024, the company also voluntarily withdrew from the LASLI as part of its plan to wind-down the specialty business.
  • Conifer Insurance Company: AM Best downgraded and withdrew credit ratings of Conifer Holdings, Inc. and subsidiaries (collectively Conifer) in March 2024. The rating actions take into consideration the significant reserve charge taken in the fourth quarter of 2023 and the direct impact this had on the group’s reported surplus, resulting in a revision of Conifer’s balance sheet strength assessment to very weak. The balance sheet strength assessment not only takes in consideration the sudden and material deterioration in reserves and risk-adjusted capitalization, but it also considers the regulatory action levels brought on by the group’s failure to meet Michigan’s minimum risk-based capital levels.
• P&C 1^st Quarter Underwriting Gain: The US P&C industry posted its best first quarter result in 17 years primarily due to improvements in private auto, according to S&P Global Market Intelligence. The combined ratio of approximately 94.0% marks the best result for the industry in a first quarter since 2007 and the best result in any quarter since the third quarter of 2013, according to an S&P Global Market Intelligence’s preliminary aggregation of March 31 statutory financials released on May 21, 2024. Staggering improvements in private auto results both sequentially and on a year-over-year basis, benign natural catastrophe losses, and continued benefits from a hard market in many of the commercial lines combined to help the industry make history in the first quarter.

Premium Registered by Ultimate Parent¹ – Top 20 Insurer Groups – 2024 (January Through April)

¹ Ultimate parent per AM Best as of May 22, 2024
² Status as of May 22, 2024. An insurer merged with and into another LASLI carrier is reported as having a LASLI status if premiums registered are significant.
³ AMB Financial Strength Rating per AM Best as of May 22, 2024. Lloyd’s syndicate rating = AM Best rating of the Lloyd’s market.

Premium Registered by Lloyd’s Syndicates With Managing Agent¹ – 2024 (January Through April)