American Strategic CEO: Business Principles Lead to Strong Combined Ratio

American Strategic Insurance Corp. President and Chief Executive Officer John Auer said several factors have led to its strong combined ratio. According to an AMB Credit Report, the property writer has had an average combined ratio in the mid-70s over the past five years, despite primarily writing in Florida and Texas.

Here is what Auer recently told BestWeek about the company's reinsurance relationship, exposure management and pricing strategy:

Pricing Risk

We have very sophisticated pricing models and are committed to developing rates that reflect risk as closely as we possibly can. We clearly have a lot of exposure in catastrophe-exposed markets. We depend on reinsurance to cover this risk; therefore, pricing the cat perils in line with how reinsurers price our reinsurance is vital. We are committed to having our risks insured for full replacement cost. Our system will not permit a policy to be issued for less than 100% of the estimated rebuilding cost. We license both Risk Management Solutions and AIR Worldwide and use the models to establish the catastrophe portion of our rates.

Exposure Management

We manage our concentrations very proactively with the RMS and AIR models. This has a significant impact on probable maximum loss and ultimately reinsurance cost. We use several data characteristics and inspections to verify the information provided by our agents.

Reinsurance

We've gained tremendous credibility with reinsurers. During each year of catastrophes, our losses have been very close to the RMS and AIR model estimates. Most recently, our (Hurricane) Ike loss was less than either model forecast. Our experience and relationship with reinsurers leads to more favorable pricing on our catastrophe reinsurance.

Claims

Our claims function is internal. During each catastrophe event we've experienced, our claims were closed significantly faster than the industry. Providing outstanding claims service leads to satisfied customers and significantly less litigation and lower severity.

Agency Relationships

Most of our business comes from independent agents. Agents have multiple companies in which they can place a risk. We are committed to being the easiest company to use and providing the best service in the business.

Future Opportunities

We plan to limit our product offering to personal and commercial property insurance and personal umbrella. We have no intention of ever entering auto insurance. During the last two years, we've expanded to Arizona, Colorado, Louisiana and South Carolina and we expect to launch Virginia and New Jersey within 60 days. We are currently licensed in 21 states and have applications pending in five additional states. We plan to be selling products in all 26 states within the next three years.

American Strategic Insurance Group currently has a Best's Financial Strength Rating of A- (Excellent).