Making Money Isn’t as Easy as You Might Think for New Insurance Companies

Insurance companies typically don’t elicit much sympathy from the public. We see them as either predatory, thieves or, at the very least, on par with lawyers as businesses that we rarely choose to be in contact with unless we have to.

This is partially because we see insurers as simply profiting from our misfortune, and partially due to the necessity of having coverage. I guess we simply resent being told to spend money on anything that we have not chosen to purchase.

But is our attitude completely reasonable? Are insurers coining money? Let’s look at some numbers from Property and Casualty insurers, those companies that we depend on to cover our homes and vehicles, among other things.

In the past five years, 170 new P&C insurers have set up business. But only 75 were profitable over the combined five-year period. That’s just 44.1%! The numbers were even worse in 2016: Only 69 of the new insurers recorded a profit, or 40.6%.

Between them, these new insurers generated total losses of $6.7 million last year. And over the last five years, these insurers lost $42.6 million. Heck, 2013 was the only year when this group of insurers reported a combined profit — $14.8 million.

Four of the 170 went out of business already and 57 are still too new for Weiss to rate. But among the remaining companies, 113 were rated and this is what their ratings distribution looks like.

You can see the majority of the ratings fall within the “D” and “E” range. That means the companies are considered to be vulnerable. However, there are some “Bs” and Cs”, and even two “As”, in the mix.

Meanwhile, the table below shows the ten most-profitable P&C insurers founded within the last five years. As you can see, there are two “A”-rated companies. CopperPoint Mutual Ins. Co, a CopperPoint Group insurance company, was set up 2013, and Radian Reinsurance Inc., a subsidiary of Radian Group Inc., was founded in 2015.

10 Most Profitable Recently Set-Up P&C Insurers

Clearly, new insurance companies face a number of challenges when setting up shop. Some are fortunate to have the support of a well-established parent company, while others must start from scratch to raise capital, grow their business, and establish good reputations.

So you may still not like insurance companies. But realize that they can struggle like any other business, something that may at least let you empathize with the challenges they face.

Think Safety,

Gavin Magor

Insurance Insights Edition, By Gavin Magor, Senior Financial Analyst Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media.