The purpose of the BLTR benchmark categories and the insurers used for their calculation.

Contents:

  1. Overview
  2. Benchmark categories
  3. Benchmark updates
  4. 3-year average benchmarks
  5. Benchmark cohort selection
  6. Important considerations when using the ratio benchmark categories.
  7. Ratio benchmarks reflecting Adjusted Shareholders’ Funds (“ASF”)
  8. Quality assurance of benchmark calculations
  9. The 2022 3-year average benchmarks
  10. 2022 cohort make-up
  11. The 2021 3-year average benchmarks
  12. 2021 cohort make-up

 

1. Overview

To provide BLTR users with a context for considering individual ratio outcomes, we compare each to a UK non-life market benchmark calculated from a cohort of 50 selected UK non-life insurers (the benchmark cohort). For each ratio the cohort list is then ranked from the ‘best/strongest’ to the ‘worst/weakest’ outcome. It is important to note that higher ratio outcomes are better in some instances and worse in others.

 

2. Benchmark categories

The cohort results are split into 5 categories via 4 benchmarks for each ratio:

The categories are calculated and defined as follows: from the best/strongest to the worst/weakest

Category 1  =  ratios better than or equal to the 10% benchmark

Category 2  =  ratios worse than the 10% benchmark but better than or equal to the 30% benchmark

Category 3  =  ratios worse than the 30% benchmark but better than or equal to the 70% benchmark

Category 4  =  ratios worse than the 70% benchmark but worse than or equal to the 90% benchmark

Category 5  =  ratios worse than the 90% benchmark

The reason for the wider percentile ranges in the middle benchmarks is to allow for the fact that it would be expected that there is some clustering around the mean (50%) in the benchmark cohort. Hence the average difference in any ratio between adjacently ranked members of category 3 would be expected to be lower than that seen in categories 1 or 5.

Section 9 details the derived BLTR category benchmarks for all ratios.

For each insurer covered by the BLTR we then identify which of the 5 categories each of its ratios falls into.

We have seen instances where an insurer covered by the BLTR is outside the range of the benchmark cohort; i.e. their outcome is either better than the best in the cohort or worse than the worst.

There have also been instances where a covered insurer is substantially better than the benchmark for category 1, or substantially worse than the benchmark for category 5.

To signal these instances we have introduced an exclamation mark “!”, which will be added where applicable to categories 1 and 5, and displayed as 1! or 5!.

An illustration of how “!” are identified is explained in the following diagram.

 

How it works – the new “!” benchmark

At the ‘better’ end of the scale:

For ratios where a lower ratio is better:

Then we divide the 2/1 benchmark percentage by 2, and compare that to the best ratio.  The new “1!” benchmark is the higher of these two.

For ratios where a higher ratio is better:

We multiply the 2/1 benchmark percentage by 2, and compare that to the best ratio.  The new “1!” benchmark is the lower of these two.

Two examples:

At the ‘worse’ end of the scale:

For ratios where a lower ratio is better:

Then we multiply the 4/5 benchmark percentage by 2, and compare that to the worst ratio.  The new “5!” benchmark is the lower of these two.

For ratios where a higher ratio is better:

We divide the 4/5 benchmark percentage by 2, and compare that to the worst ratio.

The new “5!” benchmark is the higher of these two.

When you see an exclamation mark you know that:

  • Either the ratio is better/worse than the whole benchmark cohort
  • Or that it’s a lot better/worse than the benchmarks that define the change from category 1 to 2 or from category 4 to 5 (the best or worst 10%)

 

3. Benchmark updates

For any new financial year inevitably the availability of the accounts for all the benchmark cohort members – such that the new year’s benchmarks can be calculated – will lag the availability of some of the covered insurers’ accounts for that year.

Waiting for an updated benchmark calculation before publishing updated individual BLTRs would not be desirable because members would be looking at unnecessarily outdated data on the covered insurer.

Hence updated insurers are benchmarked against the prior year benchmark percentiles until the latest year becomes available. At which point all the BLTRs are recalculated and updated.

 

4. 3-year average benchmarks

To limit year-on-year volatility within the benchmark levels these are averaged over the last 3 years. Hence the 2022 financial year benchmarks reflect those for the individual years of 2022, 2021 and 2020, added together and divided by 3. Moreover, the combined and operating ratio benchmarks for each individual year in the above are themselves the average of the current and prior year (as are these ratios for each covered insurer’s BLTR)

 

5. Benchmark cohort selection

The largest 50 UK domiciled non-life operating insurers (ranked by net written premium) are used to calculate the benchmarks subject to them meeting the following conditions.

The insurer:

  • has a full data record (for the data used within the BLTR) available within Best’s ‘Statement File Global’ database.
  • is not a Lloyd’s Syndicate or Captive insurer
  • is not predominantly a reinsurer or credit insurer
  • is not an agency
  • does not show any life business within its Best’s data record
  • does not have a fellow group member also included in the cohort (the largest available operating insurer from each group is used)

 

6. Important considerations when using the ratio benchmark categories.

By their nature, the categorisations are relative (to the benchmark cohort) not absolute. The use of the largest applicable insurers for the benchmark calculations means that a highly representative outcome should be seen: larger insurers are less likely to have unusual aspects to their financial data profiles driven by either their business model or accounting conventions. Nonetheless it is always possible that the benchmark cohort overall is unusually positive or negative for a given ratio over the 3-year average period.

In any given case, a ratio outcome may not be indicative of the characteristic it is typically used to assess (see the ‘Ratio Guide’ tab) and the BLTR ratios need to be considered in the context of the rest of the insurer’s profile, business lines and accounts.

Which ratios are considered most significant is for the user to judge in the case specific context. However, Litmus would note that analytically it would be unusual for substantially more weight overall to be given to non-capital ratios than to capital ratios. Indeed, this is why they are presented separately.

Category 3 represents the range between the strongest and weakest 30% of benchmark cohort outcomes for any given ratio. This category is the broadest in terms of the numbers of the benchmark cohort members it covers as it would typically be expected that ratio differences in the benchmark cohort rankings are smaller nearer to the mean outcome for the cohort (i.e. that there will some clustering around the mean). That said, Litmus recommends the BLTR user also considers whether a category 3 ratio is close to the category 2 or 4 boundary (see benchmark ratio boundaries below) as part of their review of the overall category profile.

Where results for ratios based on RSF are materially more positive or negative than those based on ASF, the user should consider the source of the difference between the RSF and ASF figures (see the BLTR report). This may well be a situation where a direct discussion between the insurer and the broker is needed. A clarification of the rationale for the standard adjustments made to RSF appear in the ‘Data Adjustments’ tab.

As indicated by “!”, categories 1 and 5 may contain exceptionally high or low ratios compared to the benchmarks (see benchmark strongest and weakest outcomes below) and, if so, this would normally suggest further review to clarify why.

 

7. Ratio benchmarks reflecting Adjusted Shareholders’ Funds (“ASF”)

The data used to calculate the benchmarks for the ASF-based capital ratios reflect exactly the same adjustments as those used when calculating a covered insurer’s ASF-based ratios.

e.g. When calculating the ASF benchmarks, goodwill is deducted from Reported Shareholders’ Funds (“RSF”) for all of the benchmark cohort where this appears.

 

8. Quality assurance of benchmark calculations

For individual insurer’s BLTRs, Litmus has reviewed the Best ratio report as a ‘double-blind’ test to check the accurate calculation of the ratios.  Modest differences can exist between the Best’s ratios and those shown in the BLTR due to (intended) minor differences in their calculation basis. But where these occur Litmus has concluded that the differences are as would be expected.

Since Best does not publish an equivalent to the ‘cohort benchmarks’, BIBA commissioned Best to produce these privately for Litmus as a separate ‘double-blind’ test such that Litmus could also review any difference between the Litmus and Best calculations.

Individual BLTRs and the benchmarks used throughout are only released once Litmus has satisfactorily completed this review.

 

9. The 2022 3-year average benchmarks

Capital Benchmarks
Ratio
10% RSF
30% RSF
70% RSF
90% RSF
10% ASF
30% ASF
70% ASF
90% ASF
Premium Leverage
45.25
70.28
126.24
169.37
48.91
83.18
153.37
216.85
Reserve Leverage
29.44
79.02
191.75
246.60
36.50
94.73
229.79
312.01
Investment Leverage
8.81
20.23
44.44
73.99
10.77
25.85
58.56
104.33
Credit Risk
33.64
88.31
268.38
567.19
39.49
105.46
313.13
715.57
Other Benchmarks
Ratio
10%
30%
70%
90%
Combined Ratio excl OUI (2yr average)
82.55
90.78
103.27
113.30
Combined Ratio incl OUI (2yr average)
81.92
90.71
103.25
113.10
Operating Ratio incl OUI (2yr average)
73.77
84.69
97.02
107.35
Reinsurance Usage
97.73
83.66
50.61
25.24
Liquidity
421.45
174.46
119.51
81.40

 

10. 2022 cohort make-up

The following insurers were used for the three 1-year benchmark calculations (2022, 2021, 2020) that were then used to calculate the 3-year average for the 2022 benchmark:

Rank Company Rank Company
1 Beazley plc 26 Britannia Steam Ship Insurance Assoc Ltd
2 UK Insurance Limited 27 Admiral Insurance Company Limited
3 Royal & Sun Alliance Insurance plc 28 Sabre Insurance Company Limited
4 Aviva Insurance Limited 29 Aetna Insurance Company Limited London
5 Bupa Insurance Limited 30 Aioi Nissay Dowa Insurance UK Limited
6 Brit Limited 31 HSB Engineering Insurance Limited
7 AXA Insurance UK plc 32 Assurant General Insurance Limited
8 American International Group UK Ltd 33 London Steam-ship Owners Mut Ins Assoc
9 QBE UK Limited 34 Motors Insurance Company Limited
10 Allianz Insurance plc 35 Arch Insurance (UK) Limited
11 HCC International Insurance Company plc 36 Berkshire Hathaway International Ins Ltd
12 Markel International Insurance Co Ltd 37 Intl General Ins Co (UK) Ltd
13 Covea Insurance Plc 38 Steamship Mutual Underwriting Assoc Ltd
14 Ageas Insurance Limited 39 Equine and Livestock Insurance Co Ltd
15 Vitality Health Limited 40 FM Insurance Company Limited
16 Lloyds Bank General Insurance Limited 41 TT Club Mutual Insurance Limited
17 Travelers Insurance Company Limited 42 BHSF Limited
18 esure Insurance Limited 43 Lancashire Insurance Company (UK) Ltd
19 Endurance Worldwide Insurance Limited 44 China Taiping Insurance (UK) Co Ltd
20 NorthStandard Limited 45 Tradex Insurance Company Limited
21 UK Mut Steam Ship Assr Assn (Europe) Ltd 46 Irwell Insurance Company Limited
22 Hiscox Insurance Company Ltd 47 Cornish Mutual Assurance Company Limited
23 SCOR UK Company Limited 48 International Transport Intermed Club
24 CNA Insurance Company Limited 49 Stonebridge international Insurance Limited
25 Simplyhealth Access 50 United Kingdom Freight Demurrage & Def

 

11. The 2021 3-year average benchmarks

Capital Benchmarks
Ratio 10% RSF 30% RSF 70% RSF 90% RSF 10% ASF 30% ASF 70% ASF 90% ASF
Premium Leverage 35.04 60.79 113.27 156.08 44.12 70.18 146.57 195.27
Reserve Leverage 29.08 70.36 177.90 221.77 31.19 101.29 207.85 297.93
Investment Leverage 8.32 20.30 45.84 78.65 10.59 25.54 61.03 94.56
Credit Risk 33.49 62.12 237.37 464.85 41.68 88.86 278.39 652.90
Other Benchmarks
Ratio 10% 30% 70% 90%
Combined Ratio excl OUI (2yr average) 84.31 95.78 104.20 118.16
Combined Ratio incl OUI (2yr average) 83.66 95.06 103.95 117.92
Operating Ratio incl OUI (2yr average) 72.22 86.84 98.82 111.93
Reinsurance Usage 98.77 85.28 46.42 24.60
Liquidity 407.81 175.21 124.87 88.69

 

12. 2021 cohort make-up:

Rank Company Rank Company
1 UK Insurance Limited 26 UK Mut Steam Ship Assr Assn (Europe) Ltd
2 Royal & Sun Alliance Insurance plc 27 Sabre Insurance Company Limited
3 Aviva Insurance Limited 28 Admiral Insurance Company Limited
4 Beazley plc 29 London Steam-ship Owners Mut Ins Assoc
5 BUPA Insurance Ltd 30 Britannia Steam Ship Insurance Assoc Ltd
6 AXA Insurance UK plc 31 Western Provident Association Ltd
7 Brit Limited 32 Assurant General Insurance LimitedBerkshire Hathaway International Ins Ltd
8 American International Group UK Limited 33 Saga plc
9 Allianz Insurance plc 34 HSB Engineering Insurance Limited
10 QBE UK Limited 35 Berkshire Hathaway International Ins Ltd
11 HCC International Insurance Company plc 36 CIGNA Global Insurance Company Limited
12 Ageas Insurance Limited 37 International General Ins Co (UK) Ltd
13 Covea Insurance Plc 38 Arch Insurance (UK) Limited
14 Markel International Insurance Co Ltd 39 Equine and Livestock Insurance Co Ltd
15 Lloyds Bank General Insurance Limited 40 Steamship Mutual Underwriting Assoc Ltd
16 esure Insurance Limited 41 FM Insurance Company Limited
17 Travelers Insurance Company Limited 42 BHSF Limited
18 Endurance Worldwide Insurance Limited 43 TT Club Mutual Insurance Limited
19 Hiscox Insurance Company Ltd 44 Lancashire Insurance Company (UK) Ltd
20 North of England Protecting & Indem Assn 45 International Transport Intermed Club
21 Aetna Insurance Company Limited 46 Irwell Insurance Company Limited
22 Simplyhealth Access 47 China Taiping Insurance (UK) Co Ltd
23 AmTrust Europe Limited 48 Tradex Insurance Company Limited
24 CNA Insurance Company Limited 49 Cornish Mutual Assurance Company Limited
25 SCOR UK Company Limited 50 Stonebridge International Insurance Limited

These reflect a ranking (by net written premium) of the total non-life UK insurer coverage Best has for each year, after consideration of the criteria for inclusion identified in item 4 above.  Where an insurer does not meet the inclusion criteria, the next insurer by size is considered and so on until such time as there are 50 insurers in the cohort that meet the selection criteria.

In compiling the list of the largest 50 companies by net written premiums to be included in the benchmark data, Litmus endeavoured to include only the main UK non-life operating entity of each group. In instances where two companies of a group are of sufficient size to feature in the top 50, we have only included the largest operating entity. Lloyd’s syndicates have been excluded from the benchmark data due to Funds at Lloyd’s not being reflected in the individual solvency calculations derived from the syndicate accounts. Also excluded from the list are companies considered to be reinsurers, credit insurers, and those writing life business.

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