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CNA Plaza, Chicago, Ill. 60685;

312-822-1906; fax: 312-817-3317;

1997 1996

Gross premiums $544,205,439 $544,954,351

Non-Admitted $201,266,877 $181,294,645

Commercial risks 100% 100%

Net premiums $321,837,070 $360,441,102

Paid-in capital $8,700,000 $5,200,000

Capital & surplus $291,700,643 $280,811,095

Employees 168 122

Combined ratio 110.3% 109.7%

Rating agency 106.7% 109.4%

Net income $29,565,889 $34,272,113

Best's rating* A/A- A/AS&P rating* A+/A- A+/A* Ratings are for CNA and Continental Insurance Co., respectively.

Chicago-based Columbia Casualty Co. posted an 11% increase in direct, non-admitted premiums last year, allowing it to leapfrog to seventh position on Business Insurance's 1997 list of leading surplus lines insurers from 10th the year before.

The numbers reported by Columbia Casualty, the lead non-admitted insurer owned by CNA Financial Corp., show nearly $201.3 million in direct, non-admitted premiums for 1997, compared with $181.3 million in 1996.

The figures reflect the combined financial results for Columbia Casualty and Pacific Insurance Co. CNA blended Pacific into its existing non-admitted operations when it acquired Continental Corp. in May 1995. However, it decided to gradually reduce Pacific's share of non-admitted writings, which amounted to $12.8 million, or 6.4%, of its total premiums in 1997.

Pacific is a different company from Pacific Insurance Co. Ltd., which is profiled on page 28.

Columbia Casualty is eligible to write as an approved, non-admitted insurer in most U.S. states, except Illinois and Louisiana. Its Pacific affiliate is eligible to write in Canada and most U.S. states, except for Alaska, California and New York.

Columbia Casualty attributes most of its 1997 growth in non-admitted premium volume to increased writings in existing lines, said Richard W. Quehl, who is president of both Columbia Casualty and CNA E&S, the corporate division to which the non-admitted insurer belongs. CNA E&S also uses other CNA insurers to write excess and surplus lines coverages where approved.

Columbia Casualty writes mostly primary and excess casualty risks for a variety of corporate policyholders, including specialties in railroads and liquor-serving establishments.

The non-admitted insurer's writings are about 40% errors and omissions liability coverages -- equally split between health care providers and other types of policyholders -- 12% directors and officers liability coverage and 48% casualty coverages for a variety of volatile risks.

New customers have also helped Columbia Casualty increase its non-admitted writings, including biotechnology firms, a major Internet service provider needing E&O coverage and public entities seeking public officials' liability coverage.

Other new customers include companies renting contractors' equipment and aquaculturalists operating catfish farms.

Columbia Casualty recently ceased writing only one product -- a construction defect policy that a wholesaler wrote on a claims-made form. It was not as popular as an occurrence-based form that was available from competing insurers, Mr. Quehl said.

The non-admitted insurer avoids aviation as well as oil and gas risks because it lacks expertise in those areas, Mr. Quehl said.

Customers' quest for higher limits have also helped Columbia's bottom line, Mr. Quehl said.

"Part of what we see going on in the market is a customer interest and a distributor interest in having higher limits available so they can cut down the number of companies involved in a single risk," he said.

For example, Columbia Casualty's limits typically range from $1 million for liquor liability customers, which is what many states require, to up to $50 million in excess or umbrella limits for volatile manufacturing risks. In addition, a large medical facility may be able to obtain $25 million in umbrella limits.

A policyholder benefits from higher limits because it has fewer policy forms to study and less potential for discrepancies among different layers of coverage. Also, a corporate risk manager may become more confident because he or she generally has to deal with larger insurers to obtain such coverage, Mr. Quehl said.

Rate cuts were less of a motivating factor for customers last year than in the past, he said.

Rate-cutting has slowed to 5% to 10% on both primary and excess casualty risks, compared with the cuts of 10% to 15% made in the past, Mr. Quehl said.

However, admitted insurers are continuing to be an important factor behind conditions in the traditional surplus lines market.

"There is a lot of poaching that is going on" with admitted insurers writing more risks that traditionally were the domain of the surplus lines market, he said. For example, some admitted insurers are now writing some liquor liability risks as well as errors and omissions liability coverage for architects that had previously been written primarily by surplus lines insurers.

However, surplus lines insurers still retain the more volatile risks, including "heavy" manufacturing accounts, construction defects coverage, railroads' pollution liability coverage and directors and officers liability coverage for securities firms engaged in initial public offerings, Mr. Quehl said.

Increased competition from other insurers may have contributed to some declining numbers Columbia Casualty reported last year.

The most significant drop was a 13.7% decline in 1997 net income to $29.6 million from the year before. "I was surprised," said Mr. Quehl. He was unable to point to any specific reason for the profit decline.

Lesser drops were seen in a 10.7% decline in net written volume and a 0.14% drop in gross premium volume in 1997 compared with 1996.

Columbia Casualty also reported mixed results in combined ratios, depending upon the source of the calculation.

The rating agency's calculation showed some improvement as the ratio moved to 106.7% from 109.4%, though the statutory-based calculation deteriorated slightly as the ratio moved to 110.3% from 109.7%.

However, some of these lower or mixed results were offset, in part, by a nearly 3.9% increase in policyholder surplus to $291.7 million at year-end 1997.

In addition, the company's claims-paying ability held constant in 1997 compared with the previous year. A.M. Best Co. assigned CNA an A and Columbia Casualty an A-, while Standard & Poor's rated CNA slightly higher with an A+ and Columbia an A-.

To ensure future growth, Columbia Casualty is developing its own internal resources rather than counting on a radical swing in the market to bring business its way.

Mr. Quehl expects the overall soft market will continue and doesn't anticipate any significant impact from any general hardening, although an individual event like a hurricane may cause some localized hardening of rates.

The advent of securitization-type financial arrangements is a key reason buyers are now protected from the rate swings of the past that affected the insurance industry. "Buyers have become keenly aware there is more than one type of transaction to protect themselves from risk," he said.

"Across the broad spectrum, there are too many alternatives out there" that will prevent insurers from imposing higher rates over the broad market, Mr. Quehl added.

The company's continued growth in new customers and new products appears to be working this year, too.

Business in the first half of this year is good for the CNA E&S division, which saw a 21% increase in its total written premiums, which was 1% better than its target for the period. Columbia Casualty's non-admitted premiums for the first half were not available.

Last year, figures were flat after the first six months, but CNA E&S netted a 3% increase in total written premiums for all of 1997. Separate figures for Columbia Casualty were unavailable.

The company's overall goals for the current year include a 20% increase in gross written premiums as well as more net written premiums.

Mr. Quehl predicted that continued growth will be fueled by increased dealings with entre-preneurial brokers and new relationships with veteran surplus lines brokers and wholesalers that have an established business following.

Insurance buyers and retail brokers have a new appreciation for those veterans because they provide an alternative to the huge brokerage conglomerates that resulted from recent mergers.

In addition, CNA E&S has launched a major "Customer Discovery" program using surveys and in-person interviews with representatives of specific industries to learn about industry trends and untapped opportunities, Mr. Quehl said.

For example, the insurer has learned that businesses serving inner-city Hispanics are an untapped consumer market for liquor liability coverage. It also is considering developing a Spanish-language policy to meet their needs.

The company's multicultural experience already includes hiring Korean translators to help Korean-American policyholders make claims under non-standard auto policies sold in California, he added.