A careful plan: U.S. insurers appear to invest prudently.Low interest rates, erratic er·rat·ic
1. Having no fixed or regular course; wandering.
2. Lacking consistency, regularity, or uniformity: an erratic heartbeat.
3. equity returns, competitive pressures, softening softening /sof·ten·ing/ (sof´en-ing) malacia.
a change of consistency, with loss of firmness or hardness. property/casualty premium rates and competition generally are heightening height·en
v. height·ened, height·en·ing, height·ens
1. To raise or increase the quantity or degree of; intensify.
2. To make high or higher; raise.
v.intr. interest among insurers to increase yields and returns. This article looks at some areas of statutory statements where increased activity in such alternatives might be expected to have appeared. It ends with a brief look at some of the investment vehicles that insurers are considering, if not buying in Buying in has several meanings. In the securities market it refers to a process by which the buyer of securities, whose seller fails to deliver the securities contracted for, can 'buy in' the securities from a third party with the defaulting seller to make good. any great degree into their general accounts. Unless otherwise indicated, all data is from A.M. Best's Best's Statement File.
Chart 1 displays a familiar picture. Interest rates remain near 40-year lows, and returns in the broad equity market sustain their volatility Volatility
1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time.
2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the . Persistent secular Secular
An adjective used to describe a long-term time frame, usually at least 10 years.
For example, in his book "Stocks For the Long Run", Jeremy Siegel (finance professor at The Wharton School, University of Pennsylvania) argues that equity securities lows in fixed income yields complicate com·pli·cate
tr. & intr.v. com·pli·cat·ed, com·pli·cat·ing, com·pli·cates
1. To make or become complex or perplexing.
2. To twist or become twisted together.
1. pricing products, building capital and planning long term. Equity volatility begs the question why common stock, benchmarked against a broad index, is often the first step that insurers consider in diversifying away from core bond strategies. A good investment for a 401(k) with a 30-year (and tax deferred) time horizon may not be similarly suited to an insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual.
An insurer is frequently an insurance company and is also known as an underwriter. managing pricing, earnings and capital, quarter over quarter.
Observers of insurance companies (particularly ratings, securities and regulatory reg·u·late
tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates
1. To control or direct according to rule, principle, or law.
2. analysts) have an abiding a·bid·ing
Lasting for a long time; enduring: an abiding love of music.
a·biding·ly adv. suspicion that firms reach for return and may therefore accept excessive risk. Earlier articles in Best's Review have suggested that trends in bond quality and maturity fail to support this in either property/casualty or life/health (see "Investment Assessment," February February: see month. 2006; and "Follow the Money," October October: see month. 2006). Trends in overall asset allocations Asset Allocation
The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. for property/casualty and life/health are similarly benign benign /be·nign/ (be-nin´) not malignant; not recurrent; favorable for recovery.
Of no danger to health, especially relating to a tumorous growth; not malignant. . Among property/casualty firms (Chart 2), bonds plus cash have increased marginally since 2001, balancing a comparably modest decline in equities. "Other" has been static.
Similarly, life/health allocation The apportionment or designation of an item for a specific purpose or to a particular place.
In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as to fixed income plus cash (Chart 3) ended slightly higher in 2006. Equities have remained flat since 2001. Roughly one-half of "Other" life/health investments comprises policy loans; net of them, life/health is about level with property/casualty.
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Analysis of Schedule D, Parts 3, 4, and 5 for individual insurers is beyond the scope of this article, but would indicate the extent to which each sector's percentage allocation to equities reflects price corrections after 2001, the absence of new funds going into equities, or sales. Anecdotal evidence anecdotal evidence,
n information obtained from personal accounts, examples, and observations. Usually not considered scientifically valid but may indicate areas for further investigation and research. suggests the first two are operating. Insurance managers seem to like equities, though without appetite ap·pe·tite
An instinctive physical desire, as for food or sex.
The natural instinctive desire for food. for more. A rough measure of "riskier" investments is:
(Common Stocks + Real Estate + Schedule BA)
The numerator numerator
the upper part of a fraction.
see additive genetic relationship.
numerator Epidemiology The upper part of a fraction excludes mortgages, though industry figures generally include them. This seems appropriate given an increasingly active secondary market for mortgages as collateral collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although for structured securities.
Riskier-Assets-to-Surplus has increased slightly for life/health but declined slightly for property/casualty. The downward property/casualty trend reflects the sector's increases in surplus having outpaced increases in BA investments since the advent of the hard market in early 2001. Since 1996, life/health's Schedule BA has grown slightly more briskly brisk
adj. brisk·er, brisk·est
1. Marked by speed, liveliness, and vigor; energetic: had a brisk walk in the park.
2. than its surplus. Slight changes each year have generally left both sectors within a band of 60% to 70% of surplus (see Chart 4). Except for the activities of a few large insurers, real estate in both sectors as a percentage of surplus has actually declined since 2001.
In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. offer investment leverage that leaves balance sheets largely unaffected. Chart 5 addresses life/health only, as property/casualty figures are unavailable. Long positions in derivatives comprise a minimal share of net admitted assets (9 basis points) that has been increasing steadily if slowly.
This is not only an investment issue, however. A significant aspect of life insurers' derivatives strategy involves hedging option risks under insurance products, such as minimum benefits under variable annuities Variable annuities
Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. . Indeed, state investment laws generally permit little, if any, freedom to invest in derivatives other than to hedge, replicate rep·li·cate
1. To duplicate, copy, reproduce, or repeat.
2. To reproduce or make an exact copy or copies of genetic material, a cell, or an organism.
A repetition of an experiment or a procedure. investments otherwise permitted, or write covered calls Covered Call
Having a long position in an asset combined with a short position in a call option on the same underlying asset.
This is considered to be one of the safest option positions. on cash investments.
Chart 6 bears this out: hedging is by far the primary motivation for acquiring derivatives. The 2004 spike A burst of extra voltage in a power line that lasts only a few nanoseconds. See power surge, power swell, sag and surge suppression.
(jargon) spike - To defeat a selection mechanism by introducing a (sometimes temporary) device that forces a specific result. in hedging reflects one firm's activity. An informative comparison would be with derivatives activity among insurers in domiciles that follow a prudential Prudential is the name of two different companies and buildings named after them:
The market for structured securities has grown quickly, buoyed by the potential for superior risk-adjusted returns Risk-Adjusted Return
A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating.
This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. , along with correlations with bonds that are generally more attenuated Attenuated
Alive but weakened; an attenuated microorganism can no longer produce disease.
Mentioned in: Tuberculin Skin Test
having undergone a process of attenuation. than those of U.S. Treasury U.S. Treasury
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. and credit securities. Allocations in both sectors have increased--though in property/casualty not to levels seen earlier this decade; and in life/health to a level only slightly higher than over the same period. Commercial mortgage-backed securities Commercial mortgage-backed securities (CMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on commercial rather than residential real estate. and asset-backed securities Asset-backed security
A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.
A debt security collateralized by specific assets. (Chart 7) are logical sources to look for greater yields at, say, a AAA-rated level, but for the subprime disruptions still unfolding. Analytical analytical, analytic
pertaining to or emanating from analysis.
control of confounding by analysis of the results of a trial or test. capabilities to address securities structure and underlying collateral pools are often lacking at smaller insurers, which may forgo the opportunity.
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The final investment sector to consider is international. Both property/casualty and life/health have decreased allocations to Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. securities, while increasing them to securities from the rest of the world (RoW). The question, then, is whether this reflects investment strategy or funding insurance liabilities in their denominated currencies.
Accordingly, Charts 8 and 9 illustrate allocations to Canadian and RoW securities anal liabilities. Canadian liabilities have been flat, while RoW liabilities have generally increased. In both cases, however, the trends are too slight to support any analytical conclusion. Further, Schedule T (for premiums) and Summary by Country and Schedule D (for U.S. versus international investments) show only their originating region, and do not indicate the currencies in which investments or liabilities are denominated. Regardless, insurers do not appear to be moving materially into international securities in search of returns.
A prime consideration in evaluating diversification Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.
Diversification is possibly the greatest way to reduce the risk. from a constrained con·strain
tr.v. con·strained, con·strain·ing, con·strains
1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force.
2. fixed income strategy is the accounting consequences of total return strategies. The realized and unrealized gains/ (losses) they produce can unsettle earnings quality (Chart 10). Not surprisingly, common stock generally provides the largest shares of both gains and losses.
Analysts tend to be skeptical about capital gains as being beyond management's control if unrealized, yet thoroughly within their control if realized. Still, maximizing economic value supports paying some attention to generating both yields and gains. Once realized, gains are embedded Inserted into. See embedded system. in capital--tangible and subsisting. Taking the aggregate of gains and losses, both realized anal unrealized, Chart 11 indicates the share of total return that an insurer forgoes (or losses avoided) through following a purely yield-oriented strategy. All but two years since 2002 have, however, seen gains. Yield has an opportunity cost.
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Balancing economics with perception, strategies for moving beyond yield and fixed income, and toward something of a total return strategy, are those that best:
* Assure consistent yield and reasonably consistent total returns across market cycles;
* Generate capital gains that are granular granular /gran·u·lar/ (gran´u-lar) made up of or marked by presence of granules or grains.
1. Composed or appearing to be composed of granules or grains.
* Require observers to accept no "story;"
* Incur To become subject to and liable for; to have liabilities imposed by act or operation of law.
Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. limited capital charges; and
* Provide diversification under capital and other enterprise-risk management models.
Measured by broad criteria criteria (krītēr´ē),
n. , insurers in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. have followed in aggregate an investment strategy that has been consistent and conservative.
Economics and competition are prompting management to reassess reassess
to reconsider the value or importance of
Verb 1. reassess - revise or renew one's assessment
reevaluate investment strategy to assure their firm is optimal under the considerations and constraints CONSTRAINTS - A language for solving constraints using value inference.
["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. unique to their company.
Finally, there is an array of alternatives to enhance risk-adjusted returns that require sophistication so·phis·ti·cate
v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates
1. To cause to become less natural, especially to make less naive and more worldly.
2. and diligence Vigilant activity; attentiveness; or care, of which there are infinite shades, from the slightest momentary thought to the most vigilant anxiety. Attentive and persistent in doing a thing; steadily applied; active; sedulous; laborious; unremitting; untiring. to implement, but which can reward the effort.
* The Situation: Insurers must increase investment yields.
* The Big Picture: Both life/health and property/casualty insurers continue to be conservative investors.
* Watch For: Insurers may increasingly turn to alternative markets--hedge funds, synthetic structured securities and others--to bump up bump up
Informal to increase (prices) by a large amount
Verb 1. bump up - increase or raise; "OPEC bumped up the price of oil" investment returns.
What's the Big Idea?
All strategies have drawbacks that vary with an insurer's characteristics, such as capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. , insurance products and ratings. Nevertheless, here are some that are attracting attention among insurers: Asset-Backed Securities and Commercial Mortgage-Backed Securities: Complexity in both collateral and structure makes these a challenging segment that can reward with superior returns at a "AAA AAA: see American Automobile Association.
(Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied. " rating.
Alpha Overlays: Alpha-generating derivatives programs can assume the posture posture /pos·ture/ (pos´choor) the attitude of the body.pos´tural
1. A position of the body or of body parts.
2. of a unitary unitary
pertaining to a single object or individual. investment (looking like a hedge fund hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" ) or an overlay (1) A preprinted, precut form placed over a screen, key or tablet for identification purposes. See keyboard template.
(2) A program segment called into memory when required. (designed, say, to add an additional percentage point to expected portfolio returns).
Constrained Equity Strategies: Total return strategies generate random accounting and tax consequences, which highlights the attractiveness of equities managed alongside a bond portfolio to a unitary budget for realized gains Realized Gain
A gain resulting from selling an asset at a price higher than the original purchase price.
There may be tax consequences for a realized profit. and losses.
Hedge Funds: If implemented through a fund of funds Fund of Funds
A mutual fund that invests in other mutual funds.
For example, an investor would select a general risk profile and the fund-of-funds manager would pick underlying investments from a range of products managed by external managers. , hedge funds can generate bond-to-equity-like returns, bond-like volatility, and limited correlations with cash bonds and stocks--though with high demands on an investor's expertise, experience and information technology.
Hybrid Securities Hybrid Security
A security that combines two or more different financial instruments.
Hybrid securities generally combine both debt and equity characteristics. : Hybrids combine regular yields with equity-like features for which the issuers compensate investors with yields greater than under comparably rated bonds.
Infrastructure: Investments in infrastructure funds can, over the long term, generate income with limited volatility.
Investor-Owned Life Insurance: Wrapping an alternative investment (such as a derivatives alpha program) in a life insurance policy can provide value accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes.
The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the that is both tax deferred and flows through financial statements as generated.
International Securities: Asset classes range from G7 sovereign SOVEREIGN. A chief ruler with supreme power; one possessing sovereignty. (q.v.) It is also applied to a king or other magistrate with limited powers.
2. In the United States the sovereignty resides in the body of the people. Vide Rutherf. Inst. 282. debt to emerging markets equity and can offer returns superior to, or with low correlations with, U.S.-only opportunities.
Principal Protected Notes Investments such as guaranteed investment certificates (GICs) and bonds provide investment security with little or no risk of capital loss, they provide modest returns. While stocks have the potential to deliver substantial returns, they do so at much greater risk. : Issued by a highly rated institution with a principal-due date, these securities receive the issuer's rating (and, therefore, capital treatment) and have interim payment characteristics that respond to the performance of a reference asset such as hedge funds.
Synthetic Structured Securities: Exposures to the underlying collateral parallel those of securities with similar cash collateral, though the arranger can design them effectively according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the investor's requirement for interest rate structure and cash flow.
Contributor Richard Ri·chard , Joseph Henri Maurice Known as "Rocket." 1921-2000.
Canadian hockey player. A right wing for the Montreal Canadiens (1942-1960), he led his team to eight Stanley Cup championships and was the first player to score 50 goals in a Major is director and insurance strategist strat·e·gist
One who is skilled in strategy.
Noun 1. strategist - an expert in strategy (especially in warfare)
market strategist - someone skilled in planning marketing campaigns with Global Insurance Asset Management, Deutsche Asset Management. He can be reached at email@example.com. Text and data analysis provided by Mr. Major
U.S. Life/Health-2006 Asset Distribution Rank is based on total admitted assets for 2006. ($ Millions) % of Rank Group Name AMB# Bonds Assets 1 Metropolitan Life & Affiliated Cos 70192 $196,438 44.1 2 Prudential of America Group 70189 123,845 33.6 3 AIG Life Group 70342 199,304 56.9 4 Hartford Life Group 70116 37,061 15.5 5 Manulife Finl 69542 55,830 27.8 6 TIAA Group 70362 124,093 66.5 7 Aegon USA Group 69707 82,878 46.4 8 NY Life Group 69714 101,778 57.0 9 ING USA Life Group 70153 61,955 35.7 10 Axa Finl Group 70194 35,180 23.7 11 Northwestern Mutual Group 69515 70,564 48.6 12 Lincoln Finl Group 70351 54,959 38.1 13 Principal Life Ins Co 06150 38,351 30.6 14 MassMutual Finl Group 69702 43,976 36.0 15 Nationwide Life Group 70350 26,334 23.8 16 Allstate Finl 70106 51,953 57.1 17 Pacific Life Group 69720 24,571 28.0 18 Ameriprise Finl Group 69689 25,041 31.7 19 Jackson Natl Group 69578 37,623 54.2 20 Genworth Finl Group 69555 40,861 59.2 21 Allianz Ins Group 70187 36,555 57.4 22 Sun Life Finl Group 69740 21,017 35.8 23 Thrivent Finl for Lutherans 06008 28,590 54.4 24 Aflac Inc Group 69824 39,707 78.7 25 State Farm Life Group 70126 29,775 68.2 Total Top 25 $1,588,239 $42.0 Total US Life/Health & Fraternal $2,193,642 $45.6 % of Separate Rank Group Name Mortgages Assets Accounts 1 Metropolitan Life & Affiliated Cos $38,901 8.7 $149,168 2 Prudential of America Group 20,691 5.6 191,492 3 AIG Life Group 14,931 4.3 91,070 4 Hartford Life Group 2,148 0.9 189,134 5 Manulife Finl 12,066 6.0 110,854 6 TIAA Group 23,866 12.8 15,948 7 Aegon USA Group 14,995 8.4 61,291 8 NY Life Group 12,194 6.8 23,859 9 ING USA Life Group 9,546 5.5 93,471 10 Axa Finl Group 4,669 3.1 90,205 11 Northwestern Mutual Group 19,363 13.3 18,047 12 Lincoln Finl Group 7,235 5.0 72,947 13 Principal Life Ins Co 8,733 7.0 68,956 14 MassMutual Finl Group 11,077 9.1 45,569 15 Nationwide Life Group 8,602 7.8 72,295 16 Allstate Finl 7,248 8.0 25,380 17 Pacific Life Group 3,625 4.1 49,121 18 Ameriprise Finl Group 2,828 3.6 49,526 19 Jackson Natl Group 5,319 7.7 22,249 20 Genworth Finl Group 8,457 12.2 11,312 21 Allianz Ins Group 3,404 5.3 20,161 22 Sun Life Finl Group 4,527 7.7 24,745 23 Thrivent Finl for Lutherans 6,813 13.0 10,261 24 Aflac Inc Group 3 0.0 0 25 State Farm Life Group 5,090 11.7 1,591 Total Top 25 $256,330 6.8 $1,508,655 Total US Life/Health & Fraternal $302,590 6.3 $1,725,487 % of Total Rank Group Name Assets Assets 1 Metropolitan Life & Affiliated Cos 33.5 $445,926 2 Prudential of America Group 52.0 368,595 3 AIG Life Group 26.0 350,283 4 Hartford Life Group 79.3 238,475 5 Manulife Finl 55.2 200,789 6 TIAA Group 8.5 186,565 7 Aegon USA Group 34.3 178,702 8 NY Life Group 13.4 178,471 9 ING USA Life Group 53.9 173,421 10 Axa Finl Group 60.7 148,682 11 Northwestern Mutual Group 12.4 145,121 12 Lincoln Finl Group 50.6 144,166 13 Principal Life Ins Co 54.9 125,532 14 MassMutual Finl Group 37.3 122,180 15 Nationwide Life Group 65.2 110,869 16 Allstate Finl 27.9 91,004 17 Pacific Life Group 56.1 87,629 18 Ameriprise Finl Group 62.6 79,109 19 Jackson Natl Group 32.1 69,407 20 Genworth Finl Group 16.4 69,049 21 Allianz Ins Group 31.7 63,647 22 Sun Life Finl Group 42.2 58,672 23 Thrivent Finl for Lutherans 19.5 52,539 24 Aflac Inc Group 0.0 50,452 25 State Farm Life Group 3.6 43,676 Total Top 25 39.9 $3,782,959 Total US Life/Health & Fraternal 35.9 $4,810,562 Net Yield on Invested Assets Before Federal Income Tax, if Any Rank Group Name 2006 2005 2004 2003 2002 1 Metropolitan Life & Affiliated Cos 5.6 5.7 5.8 5.8 6.7 2 Prudential of America Group 5.3 5.4 5.6 5.8 5.9 3 AIG Life Group 5.7 5.3 5.5 6.0 6.5 4 Hartford Life Group 5.6 5.6 5.7 6.2 6.4 5 Manulife Finl 6.6 6.8 6.4 6.7 7.0 6 TIAA Group 6.4 6.5 6.4 6.9 7.3 7 Aegon USA Group 5.6 5.5 5.3 5.6 6.1 8 NY Life Group 5.9 5.7 5.8 6.0 6.3 9 ING USA Life Group 5.1 5.1 5.3 5.5 6.4 10 Axa Finl Group 6.5 6.5 6.2 6.7 7.2 11 Northwestern Mutual Group 6.1 6.0 6.1 6.3 6.5 12 Lincoln Finl Group 5.9 6.1 6.3 6.6 7.0 13 Principal Life Ins Co 6.1 6.2 6.6 7.0 7.4 14 MassMutual Finl Group 6.3 6.3 6.2 6.5 7.1 15 Nationwide Life Group 5.7 5.7 5.5 5.9 6.6 16 Allstate Finl 6.2 5.8 5.8 6.3 6.6 17 Pacific Life Group 6.0 6.1 7.5 6.8 7.9 18 Ameriprise Finl Group 5.5 5.6 5.6 5.2 5.5 19 Jackson Natl Group 6.1 5.9 5.5 5.7 6.1 20 Genworth Finl Group 6.2 5.9 4.5 5.7 6.1 21 Allianz Ins Group 5.7 5.4 5.6 5.8 5.7 22 Sun Life Finl Group 5.4 4.9 5.0 5.0 5.4 23 Thrivent Finl for Lutherans 5.4 5.3 5.4 5.7 6.2 24 Aflac Inc Group 4.6 4.4 4.5 4.8 5.0 25 State Farm Life Group 5.7 5.9 6.1 6.6 7.0 Total Top 25 5.8 5.7 5.8 6.1 6.6 Total US Life/Health & Fraternal 5.9 5.8 5.8 6.1 6.6 Source: A.M. Best Co. U.S. Property/Casualty--2006 Asset Distribution Rank is based on total admitted assets for 2006. ($ Millions) Nonaffiliated Common % of Rank Group Name AMB# Stocks Assets 1 Berkshire Hathaway Ins 00811 $44,941 36.9 2 State Farm Group 00088 42,205 35.1 3 Amer Intl Group, Inc 18540 4,687 4.1 4 Travelers Ins Cos 18674 162 0.2 5 Allstate Ins Group 00008 5,738 11.5 6 Liberty Mutual Ins Cos 00060 1,993 4.2 7 CNA Ins Cos 18313 442 1.1 8 Hartford Ins Group 00048 211 0.5 9 Nationwide Group 05987 3,629 9.4 10 Chubb Group of Ins Cos 00012 1,502 4.2 11 Zurich Finl Svcs NA Group 18549 849 2.6 12 Swiss Reins Group 03262 268 0.8 13 Farmers Ins Group 00032 1,310 5.5 14 State Comp Ins Fund CA 04028 0 0.0 15 USAA Group 04080 1,364 6.6 16 Ace INA Group 18498 806 4.0 17 Progressive Ins Group 00780 2,362 13.2 18 Munich Re America Corporation Group 18259 1,302 7.4 19 State Ins Fund of NY 04029 1,256 8.2 20 Allianz of America, Inc 18429 983 6.8 21 Fairfax Financial (USA) Group 03116 1,340 9.5 22 W.R. Berkley Group 04655 628 4.6 23 Safeco Ins Cos 00078 1,345 10.6 24 Auto-Owners Ins Group 04354 1,367 12.0 25 Amer Family Ins Group 00124 2,019 18.0 Total Top 25 P/C Writers $122,708 12.7 Total U.S. P/C Industry $174,816 11.7 Affiliated Bonds & % of Rank Group Name Stocks Assets 1 Berkshire Hathaway Ins $7,256 6.0 2 State Farm Group 6,587 5.5 3 Amer Intl Group, Inc 6,595 5.8 4 Travelers Ins Cos 1,184 1.6 5 Allstate Ins Group 3,760 7.5 6 Liberty Mutual Ins Cos 689 1.4 7 CNA Ins Cos 1,075 2.6 8 Hartford Ins Group 6,416 15.9 9 Nationwide Group 4,498 11.7 10 Chubb Group of Ins Cos 3,730 10.3 11 Zurich Finl Svcs NA Group 65 0.2 12 Swiss Reins Group 97 0.3 13 Farmers Ins Group 288 1.2 14 State Comp Ins Fund CA 0 0.0 15 USAA Group 3,397 16.5 16 Ace INA Group 62 0.3 17 Progressive Ins Group 447 2.5 18 Munich Re America Corporation Group 0 0.0 19 State Ins Fund of NY 0 0.0 20 Allianz of America, Inc 4 0.0 21 Fairfax Financial (USA) Group 753 5.3 22 W.R. Berkley Group 565 4.1 23 Safeco Ins Cos 0 0.0 24 Auto-Owners Ins Group 221 1.9 25 Amer Family Ins Group 453 4.0 Total Top 25 P/C Writers $48,141 5.0 Total U.S. P/C Industry $56,494 3.8 Cash & Total Short-Term % of Admitted Rank Group Name Investments Assets Assets 1 Berkshire Hathaway Ins $31,115 25.5 $121,932 2 State Farm Group 1,380 1.1 120,242 3 Amer Intl Group, Inc 1,348 1.2 114,633 4 Travelers Ins Cos 1,883 2.5 75,023 5 Allstate Ins Group 149 0.3 50,038 6 Liberty Mutual Ins Cos 2,343 4.9 47,845 7 CNA Ins Cos 1,940 4.7 41,580 8 Hartford Ins Group 1,168 2.9 40,319 9 Nationwide Group 1,729 4.5 38,453 10 Chubb Group of Ins Cos 901 2.5 36,130 11 Zurich Finl Svcs NA Group 3,342 10.1 33,121 12 Swiss Reins Group 5,429 17.0 31,881 13 Farmers Ins Group 1,048 4.4 23,724 14 State Comp Ins Fund CA 2,152 9.3 23,065 15 USAA Group 3,368 16.4 20,552 16 Ace INA Group 609 3.0 20,363 17 Progressive Ins Group 297 1.7 17,871 18 Munich Re America Corporation Group 960 5.4 17,688 19 State Ins Fund of NY 99 0.7 15,224 20 Allianz of America, Inc 507 3.5 14,470 21 Fairfax Financial (USA) Group 3,107 22.0 14,112 22 W.R. Berkley Group 863 6.3 13,760 23 Safeco Ins Cos 87 0.7 12,655 24 Auto-Owners Ins Group 130 1.1 11,368 25 Amer Family Ins Group 146 1.3 11,201 Total Top 25 P/C Writers $66,101 6.8 $967,248 Total U.S. P/C Industry $99,814 6.7 $1,488,000 Gross Yield on Invested Assets Rank Group Name 2006 2005 2004 1 Berkshire Hathaway Ins 5.0 7.1 3.6 2 State Farm Group 4.5 4.7 4.5 3 Amer Intl Group, Inc 4.7 4.9 4.4 4 Travelers Ins Cos 5.3 5.9 6.0 5 Allstate Ins Group 6.5 5.9 5.7 6 Liberty Mutual Ins Cos 5.6 6.0 5.3 7 CNA Ins Cos 5.4 6.9 4.4 8 Hartford Ins Group 5.7 6.4 6.9 9 Nationwide Group 5.4 5.4 4.7 10 Chubb Group of Ins Cos 4.0 4.4 4.1 11 Zurich Finl Svcs NA Group 4.8 4.9 4.0 12 Swiss Reins Group 6.4 3.9 3.5 13 Farmers Ins Group 4.4 4.4 4.4 14 State Comp Ins Fund CA 4.9 4.6 4.2 15 USAA Group 6.0 4.3 3.8 16 Ace INA Group 5.1 4.6 4.7 17 Progressive Ins Group 4.5 4.1 3.9 18 Munich Re America Corporation Group 4.8 4.3 3.9 19 State Ins Fund of NY 5.0 4.3 3.8 20 Allianz of America, Inc 6.3 5.3 4.8 21 Fairfax Financial (USA) Group 4.6 3.9 3.9 22 W.R. Berkley Group 4.5 4.1 3.8 23 Safeco Ins Cos 4.9 4.9 5.0 24 Auto-Owners Ins Group 4.5 4.5 4.5 25 Amer Family Ins Group 4.4 4.5 4.6 Total Top 25 P/C Writers 5.1 5.4 4.6 Total U.S. P/C Industry 4.9 5.1 4.5 Source: A.M. Best Co.