1 August 2014Actuarial & underwriting

Specialty energy keeping pace in US market: A.M. Best

Specialty insurers operating in the energy sector have consistently produced positive operating results over the most recent five years (2009-2013), as measured by pre-tax operating returns.

This is according to the latest special report from A.M. Best, which says that this is largely the result of very strong investment income supplementing underwriting results, which have been more volatile over this period.

The report looks at specialty insurers and industry captives competing with the commercial insurance market for the energy sector's insurance premiums. A.M. Best's universe of rated specialists consists of eight insurers: four specialty insurers, three single-parent captives and one electric cooperative, which operate as a reciprocal exchange structure serving rural utilities.

The specialty group's risk profile is quite high, reflecting the industry's exposure to property catastrophe events. As a result, although positive, earnings have varied widely over the past several years, with the specialty group's combined ratio fluctuating from a low of 90 percent to a high of 140 percent, with a five-year average combined ratio of 104 percent.

Notwithstanding, the variability of the group's operating and underwriting results has compared reasonably well with the commercial casualty composite, according to the report. The five-year combined ratio (before policyholder dividends) of 104 percent through year-end 2013 was slightly more than the 102.9 percent of the commercial casualty composite. The group’s after dividend combined ratio of 109.4 percent, against 103.2 percent for the composite, reflected some distribution of profits by the group to the members, the report says.