This is part 2 of the 4th article in our Data Matters series, designed to help investors, consultants, and vendors understand published data on the insurance industry. It discusses a test that provides insight into an insurer’s current reserve adequacy.

Note: If you have not read part 1 of this article, you may want to start here.

To Assess Current Reserves Adequacy, Look At Past Claims Payments, Not Past Estimates

In the first part of this article, we discussed how to use Schedule P, Part 2 to evaluate the accuracy of an insurer’s previous incurred loss estimates. Unfortunately, looking back in time does not really offer much insight into current reserve strategies and assumptions.

Evaluating current reserve adequacy presents special challenges. Companies rarely make the details of their reserve strategies available to the general public. And though insurers do submit actuarial reviews to regulators, those reviews are complex and tend to be packed with more caveats than information.

Fortunately, Schedule P provides a relatively simple way to assess current reserve adequacy—without knowing all the details of a company’s actual reserving assumptions. We can use the Schedule P data to quantify historical claim payment patterns for the company and then use those patterns to estimate the remaining payouts on current outstanding claims. We can then compare this estimate to current reserve levels to see if they differ. Here is how it’s done.

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This is the second article in our Data Matters series, designed to help readers understand the tremendous amounts of published data available on the insurance industry. Look for other articles in the weeks ahead. (The first article in the series may be found here.)

Statutory Data Is Not Compiled Using Generally Accepted Accounting Principles

Everyone researching the insurance industry at some point finds themselves looking at data drawn from both SEC reports and the statutory reports filed with state regulatory agencies. And one of the first things they notice is that data from the two sources never match up. This can be fairly alarming. Which numbers are right? Which should we be using?

For many analytical purposes, statutory reports are the best available resource. However, these reports use a different set of accounting standards than the Generally Accepted Accounting Principles (GAAP) used in the preparation of SEC filings and most annual reports.

In this article, we provide a general, non-technical overview of the Statutory Accounting Principles (SAP) that govern statutory filings. We hope this overview will help readers understand why and how GAAP and SAP differ. (more…)

This is the first article in a series designed to help readers understand the tremendous amounts of published data available on the insurance industry. Look for other articles in the series in the weeks ahead.

Data is the foundation of the insurance industry. So it’s not surprising that there are mountains of data available about the insurance business.

Investors, consultants, and businesses trying to understand the industry — or sell to it — have access to all this data. But there is almost too much of it. With over 3000 companies publishing hundreds of pages of arcane, jargon-encased financial reports every quarter, any detailed analysis of the insurance industry presents significant data management challenges.

Here is a brief, and admittedly incomplete overview of publicly available data about the insurance industry. It is designed for analysts who may not be intimately involved with the insurance industry but need to sort through the available data to develop operational or marketing insight for their own businesses. It won’t answer all your questions, but we hope it will help you begin the process of finding what you need. (more…)

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What Lies Ahead in the Personal Auto Insurance Market?

Financial results for the Property & Casualty insurance industry in 2006 & 2007 were among the best in the history of the business. The personal automobile insurance market made a strong contribution to the general prosperity. But in the second half of 2007, there were ominous signs of trouble. So what lies ahead for the personal automobile insurance market?

Things Happen On The Edges First.

The personal auto market is incredibly diverse. It’s always difficult to know what is going on. But the nonstandard auto market is often a leading indicator for the rest of the sector. When conditions are good, standard insurers cast a covetous eye toward nonstandard customers and competition heats up. But when the market starts to go sour, it often begins with the nonstandard risks.

Did strong results in the overall market lead to increased competition in the nonstandard sector in 2006 and 2007? Can trends in the nonstandard sector tell us anything about the depth of the softening market ahead?

Get beneath the surface

No hard data is readily available on performance within the nonstandard sector. But this study will help plug that gap. In our 2006 study of the nonstandard market (available here for free download), we analyzed results within a benchmark group of key nonstandard automobile insurance specialists. In this update, we look at 2006 & 2007 results and re-examine the trends and risks outlined in our earlier study.

Let us do the work for you

It has been a tumultuous couple of years for nonstandard auto insurers. Mergers and acquisitions transformed key players as investors and insurers placed a variety of short and long term bets. The 2008 Nonstandard Personal Automobile Insurance Study aggregates mountains of statutory data and presents the results of hundreds of hours of analysis. Its clear, concise, and accessible format provides valuable, cost-effective insight into this challenging market.

Here is a solid foundation for analysts looking to understand and monitor the continuing transformation of the nonstandard auto sector. And a crystal ball that may give a glimpse of what lies ahead for the rest of the personal automobile market.

Research Alternative’s 2008 Non-standard Automobile Insurance Study will be available for purchase as soon as final 2007 statutory data can be incorporated into the analysis.

Subscribe to our RSS feed to receive updates on release dates and sneak peaks at preliminary results. Or use our contact form to request to be notified when the study is published. (Just select “Notify me on NSA 2008″ from the Contact Reason drop down menu.)

Clear Insights From a Fuzzy Market

Nonstandard auto insurance (NSA) is a critical segment of the personal lines insurance marketplace. But in recent years, assessing trends in the segment has become an exercise in futility.

How large is the NSA segment? Is it growing or shrinking? Is it more or less profitable than the rest of the auto insurance industry? These are important questions with serious implications for hundreds of insurers.

But no one really knows the answers. Accurate segment-wide data on the nonstandard
auto market is simply unavailable, and anyone who claims otherwise is selling doubtful
merchandise.

This study helps bring a level of clarity to this increasingly fuzzy market segment. It uses published statutory data and other resources to provide a detailed analysis of growth and profitability among ten of the top specialists in the nonstandard auto market.

It will not give you hard and fast numbers on the entire NSA segment. No one can do that. But because the ten companies considered in the analysis write only nonstandard risks, it provides clear, clean insight into general trends in the market.

The study also provides an important benchmark for evaluating individual insurer results, and outlines what it takes to win in the NSA segment. It is important reading for anyone interested in understanding the nonstandard auto market.

Read the Summary of Findings.

Download a free evaluation copy of the Full Study.