Size does matter when it comes to writing commercial lines, although the effects vary depending upon whether Canadian commercial insurers are writing property or liability insurance, according to the Q4-2009 MSA/Baron Outlook Report.
In her article ‘Commercial Lines — Does Size Matter?’ author Barb Addie notes that “over the years, there has been an ongoing debate on which part of the market is most profitable: big, medium or small.”
“The results would indicate that the large risks are indeed the most profitable for commercial property,” Addie concludes. “The smallest risks were the least profitable (very few risks).”
For example, companies writing commercial property premiums averaging higher than $100,000 reported a five-year loss ratio of only 44.2%. In contrast, companies writing premiums averaging less than $1,000 reported a five-year loss ratio of 73.2%.
But the results for medium to large risks were much more variable, Addie added.
In fact, the five-year loss ratio for companies writing commercial property premiums averaging between $5,000 to $10,000 was only 49.6% — much lower than the 61-63% range for companies writing premiums averaging between $10,000 and $100,000.
On the commercial liability side, however, “the largest were the least rather than the most profitable,” Addie observed.
In fact, the mid-sized risks — including large liability writers such as Arch, Ace, XL Insurance and Zurich — were the most profitable, with not a lot of variability.
Overall, Addie notes, “at the current loss ratios, both commercial property and liability are profitable.”
And although “there is some talk of rates inching upwards,” Addies says, “evidence suggests that the commercial market in Canada remains soft.”
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