We generally don't write business if the risk classification is above 6. In underwriting at Philadelphia Insurance Companies, our philosophy is to select those classes that are rated 1 to 6. Some insurance companies may decide to write risk class 10 policies, but others decide they can get enough premium to make a profit by writing far less risky classes of business. For any industry or class of business, insurance companies can consult manuals that contain actuarial studies specifying the risk level of a certain class of business. The receptionist in a doctor's office may be a 1. A midwife may be classified as a 4 because the risk is not quite so high. As an example, in the medical profession, the riskiest insurance policy is brain surgery. There are ten categories of risk in every class of business. Insurance companies make the greatest profit when they sell insurance and pay no claims. Companies hedge the above noted risks through financial controls, careful selection of reinsurance, outside audits, control of aggressive marketing, strict internal operating procedures, price monitoring, and non-negotiable underwriting codes. Integrity had allowed its records and procedures to deteriorate to such a state that it couldn't support or collect its receivables. In 1987, Integrity Insurance Company was declared insolvent by the New Jersey Insurance Department because it had allowed uncollected reinsurance to grow to a staggering $500 million.

Effective procedures must be in place to collect per the terms of these contracts. With regard to collection from re-insurers, companies can and do have hundreds or even thousands of reinsurance contracts in force. Aggressive marketing can side step the underwriting procedures and seek shortcuts for the sake of making a sale. To adequately evaluate a risk, one must have complete information about the account - that is, loss history for three full years, financial history, type and amount of business and number of employees - and the discipline to obtain complete information. The underwriting of commercial insurance is an art form that depends heavily on science and discipline. Determining the premium rate as a private-passenger business-class car could be costly for this exposure, given the possibility of youthful drivers driving at night, in the city, rushing to get the pizza delivered hot. These organizations have property to insure and liability needs such as covering risk of slips and falls on their property and workers' compensation needs.

Certain of these organizations are a 2 in risk classification. For example, we write insurance on certain social service organizations. We analyze risk by classification. In this account, thousands of autos are used to deliver pizzas, and usually they are private passenger cars. We have a very conservative approach to the underwriting business. But all of these risks are very low.