top 40 insurance companies

Top 40 List of Insurers
Based on 2005 Texas Written Premium with Percentage of Market Share
Top 40 Lists: Homeowners Auto Workers' Compensation Accident and Health HMO Life Annuities
Based on 2005 Texas written Premium with Percentage of Market Share Based on 2005 Texas Written Premium with Percentage of Market Share
Top 40 Insurers/Homeowners
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
43419
State Farm Lloyds
1
1,358,692,715
29.41%
26530
Allstate Texas Lloyd's
2
763,559,356
16.53%
21652
Farmers Insurance Exchange
3
305,548,319
6.61%
41564
Travelers Lloyds of Texas Insurance Company
4
253,650,934
5.49%
25941
United Services Automobile Association
5
194,223,529
4.20%
43885
Texas Select Lloyds Insurance Company
6
185,493,081
4.01%
21660
Fire Insurance Exchange
7
154,273,896
3.34%
42110
Nationwide Lloyds
8
149,454,885
3.23%
11120
USAA Texas Lloyd's Company
9
137,957,005
2.99%
27774
Chubb Lloyds Insurance Company of Texas
10
115,147,483
2.49%
25399
Texas Farm Bureau Underwriters
11
111,722,278
2.42%
11041
Liberty Lloyds of Texas Insurance Company
12
68,092,270
1.47%
41688
Foremost Lloyds of Texas
13
60,701,387
1.31%
15474
National Lloyds Insurance Company
14
53,186,298
1.15%
11070
Safeco Lloyds Insurance Company
15
49,014,538
1.06%
38253
Hartford Lloyd's Insurance Company
16
47,313,298
1.02%
10896
Amica Lloyd's of Texas
17
46,722,665
1.01%
19208
Republic Lloyds
18
44,369,048
0.96%
11059
ASI Lloyds
19
34,112,429
0.74%
10043
American National Lloyds Insurance Company
20
32,905,845
0.71%
37877
Nationwide Property and Casualty Insurance Company
21
30,937,301
0.67%
11578
Cypress Texas Lloyds
22
26,733,803
0.58%
30023
American Standard Lloyd's Insurance Company
23
25,319,766
0.55%
11497
Stonington Lloyds Insurance Company
24
24,312,814
0.53%
11252
Encompass Home and Auto Insurance Company
25
20,156,911
0.44%
15598
Interinsurance Exchange of The Automobile Club
26
20,073,064
0.43%
26689
Trinity Lloyd's Insurance Company
27
19,673,718
0.43%
13938
Metropolitan Lloyds Insurance Company of Texas
28
18,043,725
0.39%
40673
Colonial Lloyds
29
16,503,314
0.36%
25909
Unitrin Preferred Insurance Company
30
15,725,623
0.34%
11284
Beacon Lloyds Insurance Company
31
15,505,208
0.34%
29335
Allstate County Mutual Insurance Company
32
13,665,080
0.30%
20320
Columbia Lloyds Insurance Company
33
13,150,910
0.28%
23035
Liberty Mutual Fire Insurance Company
34
13,116,811
0.28%
11523
Fidelity National Indemnity Insurance Company
35
13,099,399
0.28%
19232
Allstate Insurance Company
36
13,005,676
0.28%
25232
AIG Advantage Insurance Company
37
10,293,840
0.22%
11008
Auto Club Indemnity Company
38
10,043,823
0.22%
25151
State Farm General Insurance Company
39
9,984,001
0.22%
20230
Central Mutual Insurance Company
40
9,377,285
0.20%
Total Top 40 Homeowners Premium
4,504,863,331
97.50%

Top 40 Insurers/Private Passenger Auto
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
25178
State Farm Mutual Automobile Insurance Company
1
2,293,496,404
19.86%
29203
Progressive County Mutual Insurance Company
2
986,035,963
8.54%
28673
Mid-Century Insurance Company of Texas
3
731,962,099
6.34%
29335
Allstate County Mutual Insurance Company
4
712,995,353
6.17%
24392
Farmers Texas County Mutual Insurance Company
5
681,123,965
5.90%
19240
Allstate Indemnity Company
6
674,546,532
5.84%
29378
Old American County Mutual Fire Insurance Company
7
572,320,242
4.95%
29297
Home State County Mutual Insurance Company
8
339,300,136
2.94%
18325
Southern Farm Bureau Casualty Insurance Company
9
317,558,551
2.75%
25941
United Services Automobile Association
10
305,822,174
2.65%
10078
USAA County Mutual Insurance Company
11
301,130,579
2.61%
23787
Nationwide Mutual Insurance Company
12
246,940,923
2.14%
29246
Consumers County Mutual Insurance Company
13
238,519,788
2.06%
22063
Government Employees Insurance Company
14
231,801,450
2.01%
35882
Geico General Insurance Company
15
228,134,265
1.98%
17230
Allstate Property and Casualty Insurance Company
16
179,486,265
1.55%
26816
State Farm County Mutual Insurance Company of Texas
17
161,966,934
1.40%
27863
Southern County Mutual Insurance Company
18
151,371,975
1.31%
19544
Liberty County Mutual Insurance Company
19
141,424,965
1.22%
29254
Foremost County Mutual Insurance Company
20
132,116,784
1.14%
29262
Colonial County Mutual Insurance Company
21
121,371,001
1.05%
29408
State and County Mutual Fire Insurance Company
22
111,496,330
0.97%
22055
Geico Indemnity Company
23
102,126,372
0.88%
29394
Mercury County Mutual Insurance Company
24
97,701,345
0.85%
29351
Unitrin County Mutual Insurance Company
25
88,760,878
0.77%
19232
Allstate Insurance Company
26
87,538,395
0.76%
11070
Safeco Lloyds Insurance Company
27
83,956,701
0.73%
27820
Farm Bureau County Mutual Insurance Company of Texas
28
70,635,587
0.61%
29688
Allstate Fire and Casualty Insurance Company
29
68,203,653
0.59%
29327
AAA Texas County Mutual Insurance Company
30
59,809,183
0.52%
39012
Safeco Insurance Company of Illinois
31
53,804,993
0.47%
19976
Amica Mutual Insurance Company
32
49,386,421
0.43%
25615
Charter Oak Fire Insurance Company, The
33
45,472,933
0.39%
29319
American National County Mutual Insurance Company
34
45,219,684
0.39%
26441
Dairyland County Mutual Insurance Company of Texas
35
44,841,972
0.39%
24740
Safeco Insurance Company of America
36
40,115,613
0.35%
13820
Great Texas County Mutual Insurance Company
37
35,732,706
0.31%
18430
Agricultural Workers Mutual Auto Insurance Company
38
34,247,298
0.30%
11521
Germania Select Insurance Company
39
33,898,756
0.29%
25623
Phoenix Insurance Company, The
40
25,719,011
0.22%
Total Top 40 Private Passenger Auto Premium
10,928,094,179
94.61%

Top 40 Insurers/Workers’ Compensation
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
22945
Texas Mutual Insurance Company
1
701,956,102
25.99%
19380
American Home Assurance Company
2
193,821,061
7.18%
30104
Hartford Underwriters Insurance Company
3
146,794,030
5.44%
16535
Zurich American Insurance Company
4
135,388,371
5.01%
22667
Ace American Insurance Company
5
94,659,625
3.51%
42404
Liberty Insurance Corporation
6
80,917,971
3.00%
19410
Commerce and Industry Insurance Company
7
79,703,467
2.95%
43389
Service Lloyds Insurance Company
8
49,984,136
1.85%
23035
Liberty Mutual Fire Insurance Company
9
47,787,752
1.77%
20281
Federal Insurance Company
10
47,209,295
1.75%
23841
New Hampshire Insurance Company
11
46,697,590
1.73%
23043
Liberty Mutual Insurance Company
12
44,355,105
1.64%
24147
Old Republic Insurance Company
13
43,809,183
1.62%
19429
Insurance Company of The State of Pennsylvania, The
14
42,595,027
1.58%
23396
Amerisure Mutual Insurance Company
15
37,464,233
1.39%
25658
Travelers Indemnity Company, The
16
35,959,759
1.33%
26247
American Guarantee and Liability Insurance Company
17
31,569,975
1.17%
29459
Twin City Fire Insurance Company
18
28,969,939
1.07%
13269
Zenith Insurance Company
19
28,010,139
1.04%
25402
Amcomp Assurance Corporation
20
25,201,358
0.93%
29424
Hartford Casualty Insurance Company
21
25,178,062
0.93%
20486
Transcontinental Insurance Company
22
24,432,729
0.90%
24767
St. Paul Fire and Marine Insurance Company
23
23,009,636
0.85%
25682
Travelers Indemnity Company of Connecticut, The
24
22,487,978
0.83%
40142
American Zurich Insurance Company
25
20,145,667
0.75%
21458
Employers Insurance Company of Wausau
26
19,452,168
0.72%
43575
Indemnity Insurance Company of North America
27
18,958,234
0.70%
20508
Valley Forge Insurance Company
28
17,358,059
0.64%
20478
National Fire Insurance Company of Hartford
29
16,122,254
0.60%
26042
Wausau Underwriters Insurance Company
30
15,852,771
0.59%
20095
Bituminous Casualty Corporation
31
15,240,350
0.56%
24988
Sentry Insurance A Mutual Company
32
14,644,295
0.54%
37478
Hartford Insurance Company of The Midwest
33
14,484,471
0.54%
25666
Travelers Indemnity Company of America, The
34
13,943,463
0.52%
25674
Travelers Property Casualty Company of America
35
13,825,887
0.51%
25615
Charter Oak Fire Insurance Company, The
36
13,642,604
0.51%
19038
Travelers Casualty and Surety Company
37
13,049,584
0.48%
24171
Netherlands Insurance Company, The
38
12,637,663
0.47%
20427
American Casualty Company of Reading, Pennsylvania
39
12,423,867
0.46%
20443
Continental Casualty Company
40
12,408,895
0.46%
Total Top 40 Workers' Compensation Premium
2,282,152,755
84.51%

Top 40 Insurers/Accident and Health
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
70670
Blue Cross and Blue Shield of Texas, A Division of Health Care Service Corporation
1
3,264,079,227
22.29%
79413
United Healthcare Insurance Company
2
2,346,430,728
16.02%
73288
Humana Insurance Company
3
947,848,041
6.47%
60054
Aetna Life Insurance Company
4
732,015,182
5.00%
80314
Unicare Life & Health Insurance Company
5
538,799,604
3.68%
61271
Principal Life Insurance Company
6
415,942,810
2.84%
65978
Metropolitan Life Insurance Company
7
276,147,622
1.89%
62235
Unum Life Insurance Company of America
8
252,776,553
1.73%
60380
American Family Life Assurance Company of Columbus
9
236,050,149
1.61%
64246
Guardian Life Insurance Company of America, The
10
212,140,212
1.45%
62308
Connecticut General Life Insurance Company
11
196,154,835
1.34%
84506
Pacificare Life Assurance Company
12
195,746,839
1.34%
97268
Pacific Life & Annuity Company
13
159,572,913
1.09%
69477
Time Insurance Company
14
158,774,590
1.08%
25178
State Farm Mutual Automobile Insurance Company
15
140,673,539
0.96%
97055
Mega Life And Health Insurance Company, The
16
115,516,884
0.79%
70408
Union Security Insurance Company
17
114,001,184
0.78%
65080
John Alden Life Insurance Company
18
99,793,342
0.68%
71412
Mutual of Omaha Insurance Company
19
95,766,387
0.65%
65498
Life Insurance Company of North America
20
93,298,071
0.64%
39616
Vision Service Plan Insurance Company
21
91,191,399
0.62%
70815
Hartford Life and Accident Insurance Company
22
79,111,249
0.54%
69019
Standard Insurance Company
23
79,050,788
0.54%
92916
United American Insurance Company
24
77,555,684
0.53%
61832
Chesapeake Life Insurance Company, The
25
75,636,252
0.52%
68322
Great-West Life & Annuity Insurance Company
26
73,290,793
0.50%
70025
Genworth Life Insurance Company
27
72,839,960
0.50%
71013
Superior Healthplan Network
28
69,751,888
0.48%
66915
New York Life Insurance Company
29
69,091,239
0.47%
62286
Golden Rule Insurance Company
30
67,632,688
0.46%
70254
Jefferson Pilot Financial Insurance Company
31
64,849,546
0.44%
61263
Bankers Life and Casualty Company
32
62,584,939
0.43%
97179
American Medical Security Life Insurance Company
33
62,544,881
0.43%
80926
Genworth Life and Health Insurance Company
34
57,045,045
0.39%
67105
Reliastar Life Insurance Company
35
55,036,338
0.38%
80802
Sun Life Assurance Company of Canada
36
54,042,832
0.37%
62049
Colonial Life And Accident Insurance Company
37
52,083,673
0.36%
80578
Physicians Mutual Insurance Company
38
51,669,925
0.35%
60410
American Fidelity Assurance Company
39
48,375,226
0.33%
20443
Continental Casualty Company
40
45,753,477
0.31%
Total Top 40 Accident & Health Premiums
11,900,666,534
81.27%

Top 40 Health Maintenance Organization/Accident and Health
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
95490
Aetna Health Inc.
1
970,910,651
13.42%
95174
Pacificare of Texas, Inc.
2
948,700,385
13.11%
95314
Amerigroup Texas, Inc.
3
853,116,612
11.79%
70670
Blue Cross and Blue Shield of Texas, A Division of Health Care Service Corporation
4
832,165,520
11.50%
95024
Humana Health Plan of Texas, Inc.
5
496,375,504
6.86%
95099
Scott and White Health Plan
6
437,529,969
6.05%
95647
Superior Healthplan, Inc.
7
264,538,460
3.66%
11593
Texas Healthspring I, Llc
8
245,428,820
3.39%
11141
Evercare of Texas, L.L.C.
9
239,031,905
3.30%
95383
Cigna Healthcare of Texas, Inc.
10
227,358,578
3.14%
95138
SHA, L.L.C.
11
219,903,346
3.04%
10096
Selectcare of Texas, L.L.C.
12
215,440,638
2.98%
95414
Parkland Community Health Plan, Inc., A Program of Dallas County Hospital District
13
193,831,959
2.68%
95329
Texas Children's Health Plan, Inc.
14
169,803,495
2.35%
95765
United Healthcare of Texas, Inc.
15
136,773,026
1.89%
95248
Community First Health Plans, Inc.
16
129,931,974
1.80%
95615
Community Health Choice, Inc.
17
116,249,871
1.61%
52635
El Paso First Health Plans, Inc.
18
71,670,720
0.99%
95420
Unicare Health Plans of Texas, Inc.
19
66,100,453
0.91%
95910
Aetna Dental Inc.
20
58,520,860
0.81%
95799
Valueoptions of Texas, Inc.
21
51,739,545
0.72%
95037
Cigna Dental Health of Texas, Inc.
22
40,373,075
0.56%
95801
Valley Baptist Health Plan, Inc.
23
37,352,130
0.52%
95415
Great-West Healthcare of Texas, Inc.
24
33,120,939
0.46%
95822
Cook Children's Health Plan
25
28,417,584
0.39%
95764
UTMB Health Plans, Inc.
26
28,362,110
0.39%
95309
Mercy Health Plans of Missouri, Inc.
27
23,161,242
0.32%
95142
United Dental Care of Texas, Inc.
28
17,481,846
0.24%
95251
National Pacific Dental, Inc.
29
16,313,648
0.23%
95240
Seton Health Plan, Inc.
30
15,434,581
0.21%
95161
Denticare, Inc.
31
12,006,116
0.17%
95809
Driscoll Children's Health Plan
32
10,532,385
0.15%
95051
Safeguard Health Plans, Inc.
33
9,821,876
0.14%
52556
Managed Dentalguard, Inc.
34
4,991,856
0.07%
95163
Alpha Dental Programs, Inc.
35
4,190,741
0.06%
12151
Arcadian Health Plan, Inc.
36
3,411,708
0.05%
11494
PSO Health Services, LLC
37
1,654,530
0.02%
95247
MNM-1997, Inc.
38
1,545,135
0.02%
10134
Elder Health Texas, Inc.
39
765,411
0.01%
12174
Legacy Health Solutions, Inc.
40
655,259
0.01%
Total Top 40 Health Maintenance Organizations
7,234,714,463
99.99%

Top 40 Insurers/Life
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
65978
Metropolitan Life Insurance Company
1
609,157,446
7.69%
67091
Northwestern Mutual Life Insurance Company, The
2
329,516,224
4.16%
69108
State Farm Life Insurance Company
3
238,183,580
3.01%
68241
Prudential Insurance Company of America, The
4
236,510,061
2.98%
66915
New York Life Insurance Company
5
223,096,680
2.81%
60488
American General Life Insurance Company
6
218,573,904
2.76%
65935
Massachusetts Mutual Life Insurance Company
7
209,908,234
2.65%
67466
Pacific Life Insurance Company
8
169,878,499
2.14%
67121
Transamerica Occidental Life Insurance Company
9
149,747,635
1.89%
60739
American National Insurance Company
10
137,962,895
1.74%
62235
Unum Life Insurance Company of America
11
134,134,097
1.69%
65919
Primerica Life Insurance Company
12
111,130,228
1.40%
71129
Fort Dearborn Life Insurance Company
13
108,503,011
1.37%
63177
Farmers New World Life Insurance Company
14
107,321,412
1.35%
65838
John Hancock Life Insurance Company (U.S.A.)
15
102,980,934
1.30%
65676
Lincoln National Life Insurance Company, The
16
95,616,042
1.21%
67105
Reliastar Life Insurance Company
17
95,416,907
1.20%
62944
AXA Equitable Life Insurance Company
18
94,969,322
1.20%
71153
Hartford Life and Annuity Insurance Company
19
94,801,981
1.20%
80802
Sun Life Assurance Company of Canada
20
89,055,417
1.12%
91596
New York Life Insurance and Annuity Corporation
21
88,912,556
1.12%
68136
Protective Life Insurance Company
22
85,022,318
1.07%
60186
Allstate Life Insurance Company
23
84,729,570
1.07%
70254
Jefferson Pilot Financial Insurance Company
24
83,780,101
1.06%
68896
Southern Farm Bureau Life Insurance Company
25
82,530,650
1.04%
67865
Jefferson-Pilot Life Insurance Company
26
82,160,070
1.04%
68713
Security Life of Denver Insurance Company
27
80,004,971
1.01%
68357
Reliable Life Insurance Company, The
28
79,484,613
1.00%
69663
USAA Life Insurance Company
29
76,627,801
0.97%
65005
IDS Life Insurance Company
30
75,979,616
0.96%
62308
Connecticut General Life Insurance Company
31
74,748,057
0.94%
64246
Guardian Life Insurance Company of America, The
32
67,051,412
0.85%
63401
First Colony Life Insurance Company
33
66,364,925
0.84%
65498
Life Insurance Company of North America
34
65,759,712
0.83%
69868
United of Omaha Life Insurance Company
35
64,149,820
0.81%
70335
West Coast Life Insurance Company
36
63,469,095
0.80%
61271
Principal Life Insurance Company
37
62,507,182
0.79%
65595
Lincoln Benefit Life Company
38
60,410,052
0.76%
79227
Pruco Life Insurance Company
39
59,912,061
0.76%
66869
Nationwide Life Insurance Company
40
59,328,355
0.75%
Total Top 40 Life Premium
5,019,397,446
63.33%

Top 40 Insurers/Annuities
NAIC Number
INSURANCE COMPANY
RANK
WRITTEN PREMIUM
% OF MARKET
65838
John Hancock Life Insurance Company (U.S.A.)
1
1,112,631,860
5.86%
60488
American General Life Insurance Company
2
1,062,819,320
5.60%
90611
Allianz Life Insurance Company of North America
3
965,490,068
5.09%
70238
Variable Annuity Life Insurance Company, The
4
946,449,446
4.98%
62944
AXA Equitable Life Insurance Company
5
745,339,719
3.93%
71153
Hartford Life and Annuity Insurance Company
6
636,581,682
3.35%
65676
Lincoln National Life Insurance Company, The
7
635,943,018
3.35%
61271
Principal Life Insurance Company
8
580,082,189
3.06%
86509
ING Life Insurance and Annuity Company
9
528,142,473
2.78%
88072
Hartford Life Insurance Company
10
524,318,256
2.76%
65978
Metropolitan Life Insurance Company
11
508,694,046
2.68%
80942
ING USA Annuity and Life Insurance Company
12
468,848,013
2.47%
86231
Transamerica Life Insurance Company
13
406,309,914
2.14%
67121
Transamerica Occidental Life Insurance Company
14
404,007,085
2.13%
66869
Nationwide Life Insurance Company
15
384,975,424
2.03%
67466
Pacific Life Insurance Company
16
362,123,961
1.91%
70432
AIG Annuity Insurance Company
17
349,054,381
1.84%

College Retirement Equities Fund
18
342,310,820
1.80%
65056
Jackson National Life Insurance Company
19
339,009,098
1.79%
66915
New York Life Insurance Company
20
330,933,499
1.74%
65935
Massachusetts Mutual Life Insurance Company
21
300,036,564
1.58%
69345
Teachers Insurance and Annuity Association of America
22
277,682,566
1.46%
91596
New York Life Insurance and Annuity Corporation
23
275,243,156
1.45%
65005
IDS Life Insurance Company
24
266,080,021
1.40%
92738
American Equity Investment Life Insurance Company
25
262,968,116
1.39%
86630
American Skandia Life Assurance Corporation
26
242,565,154
1.28%
60941
AIG Sunamerica Life Assurance Company
27
225,094,809
1.19%
70025
Genworth Life Insurance Company
28
218,989,426
1.15%
79065
Sun Life Assurance Company of Canada (U.S.)
29
198,302,032
1.04%
61050
Metlife Investors USA Insurance Company
30
195,138,887
1.03%
60186
Allstate Life Insurance Company
31
194,152,136
1.02%
87726
Metlife Insurance Company of Connecticut
32
167,720,988
0.88%
60895
American United Life Insurance Company
33
163,121,848
0.86%
65595
Lincoln Benefit Life Company
34
156,775,641
0.83%
63274
Fidelity and Guaranty Life Insurance Company
35
155,356,055
0.82%
68322
Great-West Life & Annuity Insurance Company
36
127,983,301
0.67%
61689
Amerus Life Insurance Company
37
124,279,022
0.65%
69019
Standard Insurance Company
38
122,185,307
0.64%
69663
USAA Life Insurance Company
39
121,142,497
0.64%
68675
Security Benefit Life Insurance Company
40
118,915,332
0.63%
Total Top 40 Annuity Premium
15,547,797,130
81.89%
For more information contact: PIO@tdi.state.tx.us
Last updated: 03/15/2007
Select Topic & Link
Online
Agency Calendar
Annual Statements
Codes / Rules
Complaint Form
En Español
Fire Prevention Guides
Helpinsure.com
Homeowner Insurers
Rate Guides
Report Fraud
Seniors
Verify Agent
Verify Insurer
Webcasts
Windstorm InfoMore Online Services
This Section
Admitted Company
Advertising Rules
Bond Resources
Company License
Enforcements
Financial Filings
Forms
HMO Forms
HMO
Independent Review Organizations (IROs)
Life-Health
Notices
Property & Casualty
Publications
Popular TDI Links
Reports
Required Reports
ROC Reports
Surplus Lines
Taxes/Assessments
Title Firms
TPAs
Utilization Review Agents (URAs)
Windstorm
Workers' Compensation Industry Home

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Contents[hide]
1 Principles of insurance
2 Indemnification
3 When is a Policy Really Insurance?
3.1 Does the Contract Contain Adequate Risk Transfer?
3.2 Is There a Brightline Test?
3.3 "Safe Harbor Exemptions"
3.4 Risk Limiting Features
4 Insurer’s business model
5 Gambling analogy
6 History of insurance
7 Types of insurance
8 Types of insurance companies
9 Life insurance and saving
10 Size of global insurance industry
11 Financial viability of insurance companies
12 Controversies
12.1 Insurance insulates too much
12.2 Closed community self-insurance
12.3 Complexity of insurance policy contracts
12.4 Redlining
12.5 Health insurance
12.6 Dental insurance
12.7 Insurance patents
12.8 The insurance industry and rent seeking
13 Glossary
14 Quote
15 References
16 See also
16.1 Lists
17 External links
//

[edit] Principles of insurance
Commercially insurable risks typically share seven common characteristics. [1]
A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004. The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyds of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.
Large Loss. The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer.
Affordable Premium. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards (See FAS 113 for example), the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance.
Calculable Loss. There are two elements that must be at least estimatable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5%. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurers appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can effect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

[edit] Indemnification
An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance 'policy'. Generally, an insurance contract includes, at a minimum, the following elements: the parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss events covered in the policy.
When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a 'claim' against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the 'premium'. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims—in theory for a relatively few claimants—and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (i.e., reserves), the remaining margin is an insurer's profit.

[edit] When is a Policy Really Insurance?
“Insurance provides indemnification against loss or liability from specified events and circumstances that may occur or be discovered during a specified period. ”
-- FASB Statement of Financial Accounting Standards No. 113, “Accounting for Reinsurance of Short-Duration and Long-Duration Contracts” December 1992
An operational definition of insurance is that it is
the benefit provided by a particular kind of indemnity contract, called an insurance policy;
that is issued by one of several kinds of legal entities (stock company, mutual company, reciprocal, or Lloyds organization, for example), any of which may be called an insurer;
in which the insurer promises to pay on behalf of or to indemnify another party, called a policyholder or insured;
that protects the insured against loss caused by those perils subject to the indemnity in exchange for consideration known as an insurance premium.
In recent years this kind of operational definition proved inadequate as a result of contracts that had the form but not the substance of insurance. The essence of insurance is the transfer of risk from the insured to one or more insurers. How much risk a contract actually transfers proved to be at the heart of the controversy.
This issue arose most clearly in reinsurance, where the use of Financial Reinsurance to reengineer insurer balance sheets under US GAAP became fashionable during the 1980s. The accounting profession raised serious concerns about the use of reinsurance in which little if any actual risk was transferred, and went on to address the issue in FAS 113, cited above. While on its face, FAS 113 is limited to accounting for reinsurance transactions, the guidance it contains is generally conceded to be equally applicable to US GAAP accounting for insurance transactions executed by commericial enterprises.

[edit] Does the Contract Contain Adequate Risk Transfer?
FAS 113 contains two tests, called the '9a and 9b tests,' that collectively require that a contract create a reasonable chance of a significant loss to the underwriter for it to be considered insurance.
9. Indemnification of the ceding enterprise against loss or liability relating to insurance risk in reinsurance of short-duration contracts requires both of the following, unless the condition in paragraph 11 is met:
a. The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts.
b. It is reasonably possible that the reinsurer may realize a significant loss from the transaction.
Paragraph 10 of FAS 113 makes clear that the 9a and 9b tests are based on comparing the present value of all costs to the PV of all income streams. FAS gives no guidance on the choice of a discount rate on which to base such a calculation, other than to say that all outcomes tested should use the same rate.
Statement of Statutory Accounting Principles ("SSAP") 62, issued by the National Association of Insurance Commissioners, applies to so-called 'statutory accounting' - the accounting for insurance enterprises to conform with regulation. Paragraph 12 of SSAP 62 is nearly identical to the FAS 113 test, while paragraph 14, which is otherwise very similar to paragraph 10 of FAS 113, additionally contains a justification for the use of a single fixed rate for discounting purposes. The choice of an "reasonable and appropriate" discount rate is left as a matter of judgement.

[edit] Is There a Brightline Test?
Neither FAS 113 nor SAP 62 defines the terms "reasonable" or "significant." Ideally, one would like to be able to substitute values for both terms. It would be much simpler if one could apply a test of an X% chance of a loss of Y% or greater. Such tests have been proposed, including one famously attributed to an SEC official who is said to have opined in an after lunch talk that a 10% chance of a 10% loss was sufficient to establish both reasonableness and significance. Indeed, many insurers and reinsurers still apply this "10/10" test as a benchmark for risk transfer testing.
It should be obvious that an attempt to use any numerical rule such as the 10/10 test will quickly run into problems. Suppose a contract has a 1% chance of a 10,000% loss? It should be reasonably self-evident that such a contract is insurance, but it fails one half of the 10/10 test. It does not appear that any "brightline" test of reasonableness nor signifance can be constructed.
Excess of loss contracts, like those commonly used for umbrella and general liability insurance, or to insure against property losses, will typically have a low ratio of premium paid to maximum loss recoverable. This ratio (expressed as a percentage), commonly called the "rate on line" for historical reasons related to underwriting practices at Lloyds of London, will typically be low for contracts that contain reasonably self-evident risk transfer. As the ratio increases to approximate the present value of the limit of coverage, self-evidence decreases and disappears.
Contracts with low rates on line may survive modest features that limit the amount of risk transferred. As rates on line increase, such risk limiting features become increasingly important.

[edit] "Safe Harbor Exemptions"
The analysis of reasonableness and signifiance is an estimate of the probability of different gain or loss outcomes under different loss scenarios. It takes time and resources to perform the analysis, which constitutes a burden without value where risk transfer is reasonably self-evident.
Guidance exists for insurers and reinsurers, whose CEO's and CFO's attest annually as to the reinsurance agreements their firms undertake. The American Academy of Actuaries, for instance, identifies three categories of contract as outside the requirement of attestation:
Inactive contracts. If there are no premiums due nor losses payable, and the insurer is not taking any credit for the reinsurance, determining risk transfer is irrelevant.
Pre-1994 contracts. The attestation requirement only applies to contracts that were entered into, renewed or amended on or after 1 January 1994. Prior contracts need not be analyzed.
Where risk transfer is "reasonably self-evident."
"Risk transfer is reasonably self-evident in most traditional per-risk or per-occurrence excess of loss reinsurance contracts. For these contracts, a predetermined amount of premium is paid and the reinsurer assumes nearly all or all of the potential variablility in the underlying losses, and it is evident from reading the basic terms of the contract that the reinsurer can incur a significant loss. In many cases, there is no aggregate limit on the reinsurer's loss. The existence of certain experience-based contract terms, such as experience accounts, profit commissions, and additional premiums, generally reduce the amount of risk transfer and make it less likely that risk transfer is reaonably self-evident."
- "Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Note," American Academy of Actuaries, November 2005. ...

[edit] Risk Limiting Features
An insurance policy should not contain provisions that allow one side or the other to unilaterally void the contract in exchange for benefit. Provisions that void the contract for failure to perform or for fraud or material misrepresentation are ordinary and acceptable.
The policy should have a term of not more than about three years. This is not a hard and fast rule. Contracts of over five years duration are classified as ‘long-term,’ which can impact the accounting treatment, and can obviously introduce the possibility that over the entire term of the contract, no actual risk will transfer. The coverage provided by the contract need not cease at the end of the term (e.g., the contract can cover occurrences as opposed to claims made or claims paid).
The contract should be considered to include any other agreements, written or oral, that confer rights, create obligations, or create benefits on the part of either or both parties. Ideally, the contract should contain an ‘Entire Agreement’ clause that assures there are no undisclosed written or oral side agreements that confer rights, create obligations, or create benefits on the part of either or both parties. If such rights, obligations or benefits exist, they must be factored into the tests of reasonableness and significance.
The contract should not contain arbitrary limitations on timing of payments. Provisions that assure both parties of time to properly present and consider claims are acceptable provided they are commercially reasonable and customary.
Provisions that expressly create actual or notional accounts that accrue actual or notional interest suggest that the contract contains, in fact, a deposit.
Provisions for additional or return premium do not, in and of themselves, render a contract something other than insurance. However, it should be unlikely that either a return or additional premium provision be triggered, and neither party should have discretion regarding the timing of such triggering.
All of the events that would give rise to claims under the contract cannot have materialized prior to the inception of the contract. If this "all events" test is not met, then the contract is considered to be a retroactive contract, for which the accounting treatment becomes complex.