S&P underwriting benchmarks

S&P Risk Solution is to launch Insurer Performance Benchmarks comparing the gross loss ratio of peer-group insurers to show how each insurer’s underwriting performance measures up against the mean and median.

The first reports will cover Lloyd’s syndicates, UK non-life insurers and European non-life insurers. Figures will come from published accounts, not from S&P’s separate credit rating business. S&P claims to have a database of figures going back 30 years.

S&P has believes the benchmarks will by used by shareholders, to communicate with regulators and for internal risk controls. Brokers and risk managers will also want to compare insurers performance as will equity and credit analysts and consultants.

Gross loss ratio

Stuart Shipperlee, managing director, said the gross loss ratio figures would not be weighted by insurer size. “If you have two big insurers and eight small ones in a peer group and you weight them, the results of the two will dominate.”

Shipperlee said the gross loss ratio would show underwriting performance, which should be the key for insurers. Net loss ratio figures are smoothed out and demonstrate how good a firm is at buying reinsurance.

He accepted that firms with better gross loss ratio may still be financially outperformed by other with better investment returns or better claims costs controls.

Mr Average

The mean and median scores being wide apart will indicate a few insurers performing very differently to the rest. This was highlighted in Lloyd’s figures for 2005 when Hurricane Katrina claims hit certain syndicates but not others.

S&P will publish its methodology and how and why it selected each peer group, including its reasons for excluding certain firms - new start-ups and those in run-off, for example.

Firms buying into the benchmark swill also be able to turn them into league tables, showing where they rank. Companies could also publish their own results if they chose.

Future plans

Future benchmarks are expected to include professional reinsurers, global P&C insurers, US Commercial Line sand US Speciality lines, all within a year.