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Insurance Issues and Analysis January 2004

Fifteen property/casualty insurers have managed a remarkable feat—

maintaining a Best’s Rating of A+ or higher for the past 50 years.
Cover Story
Standing the Test of Time
Fifteen property/casualty insurers have managed a remarkable feat—maintaining a
Best’s Rating of A+ or higher for the past 50 years.
E
xperts in athletic performance
call endurance “strength over
time.” In financial services, it’s a
challenge to find an organization that
has managed to sustain the highest
Best’s Ratings for more than a
decade—let alone five decades. In
the case of the property/casualty
industry, 15 have been assigned a
Best’s Rating of A+ or higher every
year between 1954 and 2003.
What sets these companies apart,
however, is more than their assigned
Best’s Ratings. They are dramatically
different companies.
Two of them are among the biggest
property/casualty insurers—State
Farm and Nationwide.
State Farm, the largest personal-
lines writer in the United States is
sometimes referred to by competi-
tors as the “Big Dog.” But it had hum-
ble roots, starting 81 years ago in
Bloomington, Ill., by a farmer who
believed that his colleagues and
their families should pay less for
insurance because they drove less
Illustration by Timothy Shay
2 BEST’S REVIEW • JANUARY 2004 • REPRINT
and had fewer losses than people
who lived in cities. Since then, it has
grown to 50 states and other lines of
business, but its focus remains on
middle-class Americans living rela-
tively average lives.
Nationwide and Alfa also started by
selling car insurance to farmers.
Others carved out a specific geo-
graphic niche to become the preemi-
nent provider in their tightly defined
region. Take Lititz Mutual Insurance
Co., based in Lititz, Pa.A visit to Lititz is
a journey into the heart of Pennsylva-
nia’s Amish and Mennonite farmland
regions. It underwrites home and auto
coverage in towns and counties within
a 25-mile radius, areas best known for
horse-drawn carts and great antiques.
Others don’t define themselves by
geography, but rather by the risks
they cover. Pharmacists Mutual Insur-
ance Co., based in Algona, Iowa,
sticks closely to the business it
knows—pharmacists and their
stores. Founded 105 years ago by a
man who set out to be a pharmacist,
only to see his drug store burn down,
the company remains true to its
roots. Today’s board of directors is
composed of practicing pharmacists.
Another example of a company
that sticks to the niche it helped
develop: Church Mutual Insurance
Co., based in Merrill, Wis. Started 106
years ago as the Wisconsin Church
Mutual Fire Insurance Association, the
original board was composed of eight
businessmen and two ministers—and
the company was not tied to any par-
ticular church or denomination.
Only six days after Church Mutual
was incorporated, Otsego Mutual Fire
Insurance Co. was officially established
in Burlington Flats, N.Y. The company
was started by Silas L. Kelsey after three
floods and a fire had wreaked havoc on
the town. Although he knew the suc-
cess rate for fire insurance compa-
nies at that time was dismal—27
had gone out of business two
years earlier—Kelsey set up shop in a
back room of his home. Not only did he
beat the odds of failure, but he built a
financially strong company that has
stood the test of time.
These insurers all chose a financial
strategy that kept them in good stead
throughout the decades. At State Auto
all employees receive the same per-
centage of profit sharing based on
their branch office’s experience and
the experience of the overall com-
pany. The plan Quincy Mutual Fire
Insurance Co. embraced has been to
maintain a low leverage in premium
writings to surplus.
Amica has staked its financial
strategy on building a loyal customer
base from which it gets most of new
business referrals. Since 1907, Amica
has compiled an enviable record of
paying policyholder dividends for 91
consecutive years.
Three long-established members of
the Chubb Group of Insurance Cos.
achieved this distinction: Federal
Insurance Co., Great Northern Insur-
ance Co. and Vigilant Insurance Co.
Most of the companies recognized
in this article have a domestic focus,
often a very small geographic area or
narrow niche. An exception is AIU,
which manages AIG’s overseas prop-
erty/casualty operations.
The sole reinsurer to qualify is Gen-
eral Reinsurance Corp. Originally
incorporated in 1921 in New York,
General Re, the third-largest reinsurer
in the world, was acquired by Berk-
shire Hathaway Corp. in 1998.
How This Study Was Conducted
This study involved searching all
the property/casualty companies
included in A.M. Best publications
that have earned an A+ or A++ rating
consistently during the past 50 years.
This search yielded a total of 15
property/casualty companies, out of
more than 3,300 property/casualty
insurance companies listed in Best’s
Insurance Reports. Twelve of the 15
companies maintain an affiliation
with one or more property/casualty
companies.Their ratings are based on
the consolidated performance of the
company and its affiliation with one
or more insurers, which collectively
operate, in A.M. Best’s opinion, as one
coordinated insurance group.
As noted in the accompanying
tables, there are only three unaffiliated
companies that have been rated A+ or
higher during the past 50 years. In
addition to the unaffiliated distinction,
five of the companies were also incor-
porated more than 100 years ago.
A.M. Best maintains the world’s
largest database of insurance informa-
tion and has been collecting financial
information on property/casualty
insurance organizations since 1899.

Property/Casualty Companies With A+ or Higher Ratings Since 1954

Company AMB # P/C Group Affiliation
AIU Insurance Co. 02389 American International Group Inc.
Alfa Mutual Insurance Co. 02005 Alfa Insurance Group
Amica Mutual Insurance Co. 02162 Amica Mutual Group
Church Mutual Insurance Co. 00259 none
Federal Insurance Co. 02084 Chubb Group of Insurance Cos.
General Reinsurance Corp. 02198 Berkshire Hathaway Insurance Group
Great Northern Insurance Co. 02085 Chubb Group of Insurance Cos.
Lititz Mutual Insurance Co. 00558 Lititz Mutual Group
Nationwide Mutual Fire Insurance Co. 02357 Nationwide Group
Otsego Mutual Fire Insurance Co. 03152 none
Pharmacists Mutual Insurance Co. 00320 none
Quincy Mutual Fire Insurance Co. 00796 Quincy Mutual Group
State Automobile Mutual Insurance Co. 00855 State Auto Insurance Cos.
State Farm Mutual Automobile Insurance Co. 02479 State Farm Group
Vigilant Insurance Co. 02086 Chubb Group of Insurance Cos.

Unaffiliated Companies* Incorporated More Than 100 Years Ago

Date of
Company AMB # Company AMB # Incorporation**
Church Mutual Insurance Co. 00259 Church Mutual Insurance Co. 00259 March 4, 1897
Otsego Mutual Fire Insurance Co. 03152 Federal Insurance Co. 02084 Feb. 15, 1901
Pharmacists Mutual Insurance Co. 00320 Lititz Mutual Insurance Co. 00558 Sept. 17, 1888
Otsego Mutual Fire Insurance Co. 03152 March 10, 1897
Quincy Mutual Fire Insurance Co. 00796 March 22, 1851
Ratings as of Dec. 5, 2003
* Unaffiliated Companies: Unaffiliated companies have been rated on a stand alone basis in each of the past
50 years. However, an unaffiliated company may have participated in a merger or acquisition during its history.

** Date of Incorporation: This date represents the company date of incorporation and does not necessarily
represent the date that business commenced.

Time Frame of the Study: The 1954 edition of Best’s Insurance Reports, Property/Casualty served as the starting
point of this 50-year study.

Source: A.M. Best data. A combination of computer databases and the annual publications of Best’s Insurance
Reports were the data sources of this study.

BEST’S REVIEW • JANUARY 2004 • REPRINT 3

 Cover Story

The Specialists
The Chubb Corp. credits its success to excelling in the niche markets it knows well,
rather than growing by writing mediocre business outside its specialties.

S
ince its founding, the Chubb companies that
organization has valued perfor- have been rated Federal Insurance Co.
mance over size. A+ or higher by
“Simply put, our objective is to A.M. Best Co. for Ratio Comparison
make money,” said Thomas F. Motamed, the past half-cen- Combined Ratio Operating Ratio
vice chairman and chief operating offi- tury. The three 140
cer of The Chubb Corp.“We probably companies—Fed- 120 100.9 104.5 99.8 112.7 104.5
100
could have been a bigger company if eral Insurance
80 96.5 91.3
we wrote business outside of our Co.,Vigilant Insur- 81.7 84.8
Thomas F. Motamed 60 73.2
sweet spot. A lot of people out there Vice Chairman, COO
ance Co. and 40
are insurance generalists; we view our- Great Northern 20
0
selves as specialists.We aren’t all things Insurance Co.—are among 14 domes- 1998 1999 2000 2001 2002
to all people, and we are perfectly tic property/casualty companies
happy with that.” owned by Chubb.
Thomas Caldecot Chubb and his To meet its financial goals, Chubb Net Premiums By Line—2002
son, Percy, founded the organization has a three-step process, Motamed ($ Thousands)
when they opened a marine under- said. First, the company is committed Workers'
writing business in New York City in to making a gross underwriting Comp
1882. They collected $1,000 from profit.“We don’t expect reinsurers to Other Liability
each of 100 prominent merchants to bail us out from poor underwriting
start their business, which focused on strategy,” Motamed said. “If it’s good Inland Marine
insuring ships and cargoes. The com- enough to write, it’s usually good
Homeowners
pany has grown tremendously since enough to keep.”
then, but even as it grew, its leaders Secondly, the company believes in Commercial
Multiperil
did not value size in itself but keeping conservative reserves.
regarded it as a measure of “We pride ourselves on our All Other
what had been achieved. On Rated claims operations and its 0 ,000 ,000 ,000 ,000
0 00 00 0
the company’s 75th an-
A+ or Higher ability to reser ve both $40 $8 $1,2 $1,60
niversary in 1957, Hendon timely and adequately. We
Chubb—who had joined for the don’t skimp in any way
his older brother Percy in Past 50 Years on reserves.” Policyholders' Surplus
the firm in 1895—said, “I And finally, Chubb ($ Thousands)
think there is perhaps a tenden- believes in keeping a prudent $5,000,000
cy in American business to overem- and conservative investment strategy. $4,000,000
phasize mere size, whereas to me it “If you can make money as an under- $3,000,000
should be a byproduct of a job well- writer, and make money off invest- $2,000,000
done.” ment income, that’s a pretty good $1,000,000
Chubb has successfully carved out financial return for investors,” 0
1998 1999 2000 2001 2002
a niche in commercial liability cover- Motamed said.
ages, including directors and officers Motamed and other Chubb execu-
liability, as well as several customer tives emphasize that strategy when
segments, such as technology, financial they visit with Chubb’s 13,000 Then and Now
institutions and law firms. The com- employees, plus the 8,000 indepen- 1953 2002
pany also specializes in writing high- dent agents and brokers that sell Assets $125.5 million $16.2 billion
end personal lines coverage. Chubb’s products. Net Premium $125.4 million $5.4 billion
Chubb is the only parent company “It’s a people business,” Motamed Source: A.M. Best Co. Executive Summary
that can boast it owns three of only 15 said.“Face-to-face conversations create Report; A. M. Best Company Report

4 BEST’S REVIEW • JANUARY 2004 • REPRINT

 Cover Story

a much more lasting impression. Bro- Chubb’s combined ratio—losses like to have the same customers, bro-
kers and agents want to know not and expenses as a percentage of pre- kers and agents for a long time.We try
only what the company stands for, mium—has consistently beat indus- to be consistent, not just in underwrit-
but who are the people behind the try averages. ing, but in claims.And we try to be con-
company.” It’s that consistency, in all areas, that sistent through markets, both hard and
Motamed visits 50 to 55 branch separates Chubb from its competitors, soft. Customers value us because of
offices a year personally, and that Motamed said. “The most important that,” Motamed said.
doesn’t include visits made by other thing we have is a long-term view. We —Meg Green
top Chubb executives. He meets with
employees in a “town meeting” for-
mat, to hear what they have to say Vigilant Insurance Co. Great Northern
and to answer any questions that they Insurance Co.
may have. “We like to spend a lot of
time in the field,” Motamed said. “It’s Ratio Comparison Ratio Comparison
the only way you can understand Combined Ratio Operating Ratio Combined Ratio Operating Ratio
what’s really going on. We have a 120 101.6 104.2 140
pretty strong culture that requires we 100 95.5 86.5 120 114.0 104.8
64.5 97.6 104.3 99.4
80 100
communicate, and we are very open 60 78.5 83.4 80 99.5
75.4 62.8 87.1 84.2 92.3
with employees.” 40 60 80.8
Chubb also believes in recruiting 20 40
and training its own staffers, instead of 0 20
-20 -7.64 0
hiring employees away from other 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002
insurers. “We spend a lot of time on
learning and development. We train
them from the ground up. That keeps Net Premiums By Line—2002 Net Premiums By Line—2002
our underwriting and claims culture ($ Thousands) ($ Thousands)
very consistent year in and year out.” Workers' Workers'
In 2002, the composition of Comp Comp
Chubb’s property/casualty net premi- Product Liability Other Liability
ums written was about 37% commer-
cial insurance, 37% specialty insurance Other Liability Inland Marine
and 26% personal insurance. Homeowners
Homeowners
Chubb’s commercial insurance
lines include commercial package, Commercial Commercial
Multiperil Multiperil
casualty and property coverages,
offered largely to midsize insureds.The All Other All Other
group historically has not emphasized 0 500 7,000 0,500 4,000 0 0 0 0
,00 50,00 5,00 00,00
0
extending workers’ compensation cov- $3, $ $1 $1 $25 $ $7 $1
erages to insureds within this business
segment, and consequently has
avoided much of the volatile under- Policyholders' Surplus Policyholders' Surplus
($ Thousands) ($ Thousands)
writing results experienced by the $350,000 $200,000
industry. Its specialty lines include cov- $300,000
$250,000 $160,000
erage to business executives, attorneys
$200,000 $120,000
and financial institutions. More than $150,000 $80,000
half of the group’s specialty insurance $100,000
$50,000 $40,000
lines writings represents “executive
0 0
protection”business. 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002
More than three-quarters of
Chubb’s personal lines business is
comprised of homeowners and other Then and Now Then and Now
property and liability coverages, pri- 1953 2002 1953 2002
marily provided to affluent individuals. Assets $15.8 million $275.1 million Assets $6.8 million $1.0 billion
Chubb estimates that it insures the Net Premium $14.9 million $44.7 million Net Premium $12.4 million $296.4 million
majority of U.S. homes worth more Source: A.M. Best Co. Executive Summary Source: A.M. Best Co. Executive Summary
Report; A. M. Best Company Report Report; A. M. Best Company Report
than $5 million.

BEST’S REVIEW • JANUARY 2004 • REPRINT 5

 Chubb Group of Insurance Companies
15 Mountain View Road
Warren, New Jersey 07059
www.chubb.com

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Copyright © 2004 A.M. Best Company, Inc.; Best’s Review, January 2004. All rights reserved.
Reprinted under license from A. M. Best Company