Advisen: Recession Affecting Both Supply and Demand for Insurance Coverage
Advisen:
Recession Affecting Both Supply and Demand for Insurance Coverage
April 2, 2009
Excerpts:
Commercial insurance follows a boom-and-bust pricing cycle that generally thought to be largely uncorrelated with broader economic cycles. But according to a new report released by Advisen Ltd., the current recession is different. The severity of the economic crisis will adversely impact both the top lines and bottom lines of commercial insurers, making for a turbulent 2009, researchers for Advisen say.
"While past recessions have influenced insurance pricing, no recession since World War II has influenced both supply and demand so profoundly," said David Bradford, Advisen's executive vice president and chief knowledge officer. "Hard market conditions eventually will provide insurers and brokers some relief, but we see absolute top line income declining through 2009."
"The economic crisis will cause exposure units to shrink, businesses to fail, and will force companies to consider budget-cutting measures such as higher retentions and lower limits. This falloff in demand will result in a top-line premium decline across the industry, substantially offsetting gains from higher rates," Advisen stated in a release.
Read Full Article: http://www.insurancejournal.com/news/national/2009/04/02/99278.htm
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Showing posts with label soft market. Show all posts
Showing posts with label soft market. Show all posts
Thursday, April 2, 2009
Tuesday, February 10, 2009
A.M. Best Report: U.S. Insurers Poised for Turnaround
A.M. Best Report: U.S. P/C Industry's Profits Plunge; Insurers Poised for Turnaround
Excerpts:
Insurers Poised for Turnaround
Declining underwriting results and weak investment markets have brought property/casualty insurers to a critical point where future profitability depends on strict adherence to underwriting and reserving discipline"even at the expense of market share.
Read Full Article: http://www.pr-inside.com/a-m-best-report-u-s-p-c-industry-s-r1049814.htm
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Excerpts:
Insurers Poised for Turnaround
Declining underwriting results and weak investment markets have brought property/casualty insurers to a critical point where future profitability depends on strict adherence to underwriting and reserving discipline"even at the expense of market share.
Read Full Article: http://www.pr-inside.com/a-m-best-report-u-s-p-c-industry-s-r1049814.htm
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Tuesday, February 3, 2009
Surveys See Soft Market Bottoming Out Before Long
National Underwriter Property & Casualty
Surveys See Soft Market Bottoming Out Before Long
Investment losses, reinsurance hikes pressure carriers to start raising premiums
BY CAROLINE MCDONALD
2/2/2009
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Surveys See Soft Market Bottoming Out Before Long
Investment losses, reinsurance hikes pressure carriers to start raising premiums
BY CAROLINE MCDONALD
2/2/2009
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Monday, January 19, 2009
Insurers Entering First ‘Invisible Hard Market,’ MMC’s Duperreault Says
National Underwriter Property & Casualty
Insurers Entering First ‘Invisible Hard Market,’ MMC’s Duperreault Says
The property-casualty industry is entering an “invisible hard market” as exposures disappear in a contracting economy, which hides the bottom-line benefits of rising prices, Brian Duperreault, the head of Marsh & McLennan Companies warned.
“We are in the beginning stages of a hardening market, but countervailing economic forces are turning this into our first ‘invisible’ hard market,” according to Mr. Duperreault, MMC’s president and chief executive officer.
Read full article: http://www.propertyandcasualtyinsurancenews.com/cms/nupc/Weekly%20Issues/issues/2009/03/News/P03DUPERREAULT?origin=Reinsurance
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Insurers Entering First ‘Invisible Hard Market,’ MMC’s Duperreault Says
The property-casualty industry is entering an “invisible hard market” as exposures disappear in a contracting economy, which hides the bottom-line benefits of rising prices, Brian Duperreault, the head of Marsh & McLennan Companies warned.
“We are in the beginning stages of a hardening market, but countervailing economic forces are turning this into our first ‘invisible’ hard market,” according to Mr. Duperreault, MMC’s president and chief executive officer.
Read full article: http://www.propertyandcasualtyinsurancenews.com/cms/nupc/Weekly%20Issues/issues/2009/03/News/P03DUPERREAULT?origin=Reinsurance
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Wednesday, December 31, 2008
Again, YEA!!! Advisen Forecasts End Of Soft Market In Commercial Insurance Premiums Followed By A Gradual And Prolonged Hard Market >
INSURANCE NEWSCAST for Wednesday, 12/31/08 from
http://www.insurancebroadcasting.com/insurance-news-123108-9.htm
Advisen Forecasts End Of Soft Market In Commercial Insurance Premiums Followed By A Gradual And Prolonged Hard Market >
PRICE INCREASES TO VARY BY INSURANCE PRODUCT >
New York. December 30, 2008 – Advisen Ltd., the leading provider of information, analytics, and technology to the global commercial insurance industry, today released a report predicting that the commercial insurance premium market cycle is close to its bottom and that general commercial insurance prices will begin increasing by the fourth quarter of 2009 or the first quarter of 2010. Advisen research is based on its own industry-leading database of premium history and its database of the financial performance of 13 million companies.>
“In years past, insurance companies recouped underwriting losses with investment income, but in 2008 the combination of underwriting losses and material investment losses means a five-year soft market is coming to an end,” said David K. Bradford, Advisen Executive Vice President and Chief Knowledge Officer. “The global recession may delay the return of hard market conditions by keeping demand for insurance down, but once the hard market sets in, it is likely to last longer than was the case in recent cycles.>
“In previous hard markets, price increases attracted new capital investment to the market, and the increase in insurance supply led to short hard market cycles,” continued Bradford. “In the current economic environment, where credit markets are essentially frozen, capital to create new insurance and reinsurance capacity may be in short supply. With capital scarce, the coming hard market could be longer in duration than those of the past several decades.”>
The full report is available below and covers the impact on pricing of many factors including the AIG crisis, the global economic crisis, and how buyers of commercial insurance are reacting to the market changes.>
Notes to editors:>
Rights are granted for republication in part or in full. The author is available for further quotes or comments. Contact David Bradford on dbradford@advisen.com or +1.212.897.4776. >
About the author: >
Dave Bradford is a co-founder of Advisen and leads the Research and Editorial team. He is Advisen’s senior insurance industry analyst and editor-in-chief of Advisen’s various publications. Prior to founding Advisen in 2000, Dave spent twenty years in underwriting, marketing and strategy development roles in the reinsurance industry. Most recently he was a senior vice president with Swiss Re and led the Global & National Division of Swiss Re America. Prior to Swiss Re, Dave was a senior vice president with Reliance Reinsurance Corp. He began his career as an actuarial analyst with Allstate’s Assumed Reinsurance Division. >
About the reports: >
Primary research for these reports was conducted using the Advisen.com information and analysis platform and its underlying databases, including data from its subscribers and from vendors to create the leading source of premium history. Headquartered in New York with subscribers to its information and risk analytics platform in North America, Bermuda, Europe, Asia and the Pacific Rim, Advisen serves the global commercial insurance marketplace. Call Advisen on +1.212.897.4800 in NY or +44(0)20 7929 5929 for more information about the source data used to formulate this report or to study premiums by peer group (market sector, size of company, public/private, etc.) or e-mail us on info@advisen.com. >
About Advisen >
Advisen manages business information and market data for the commercial insurance industry and maintains critical risk analytics and time-saving workflow tools for over 530 industry leading firms. Through its work for the broadest customer base among information service providers, Advisen delivers actionable information and risk models at a fraction of the cost to have them built internally. Designed and evolved by risk and insurance experts, and used daily by more than 100,000 professionals, Advisen combines the industry’s deepest data sets with proprietary analytics and offers insight into risk and insurance that is not available on any other system. Advisen is headquartered in New York For more information, visit www.advisen.com or call +1.212.897.4800 in New York or +44(0)20.7929.5929 in London. >
December 30, 2008 >
The Hard Market is Coming (But Don’t Hold Your Breath) >
An Advisen Special Report >
Executive Summary >
A five-year soft market, fueled by chronic overcapacity, is coming to an end. Following two years of record profits, losses from both underwriting and investment activities are destroying excess insurance capacity, signaling that the bottom of the commercial insurance pricing cycle is near. >
Average rate levels for commercial insurance will level off by the second quarter of 2009 and will begin to creep higher beginning the fourth quarter of 2009 or the first quarter of 2010. However, a deepening global recession may delay the return of hard market conditions by suppressing demand for insurance. In the absence of major natural catastrophes, which could trigger skyrocketing premiums, the hard market will be more gradual, and also more prolonged, than has been the case in recent cycles. >
Economic recession and the commercial insurance pricing cycle >
The commercial insurance pricing cycle is a function of the law of supply-and-demand: when the supply of insurance – as measured by the capital held by insurers to support underwriting – grows faster than the growth in demand for insurance, rates fall. Between the fourth quarter of 2003 and the second quarter of 2008, capital to support underwriting grew rapidly, driven by underwriting profits and strong investment returns. The rapid accumulation of risk capital fueled competition, driving down rate levels. >
In mature economies such as the U.S., Canada and Western Europe, the demand for insurance grows roughly at the same pace as the growth in the overall economy. Until the collapse of the U.S. subprime mortgage market thrust the global economy into a recession, economic growth was robust, though the increase in insurance supply far outstripped the growth in insurance demand. >
The present economic crisis impacts both the supply of and the demand for commercial property & casualty insurance. On the supply side of the equation, plummeting stock markets, frozen credit markets and, in some cases, investments in “toxic” mortgage-backed assets, caused many insurers to post investment losses in the third quarter. These investment losses are on top of underwriting losses driven by five years of price cutting, higher than average catastrophe losses ($24.9 billion, higher than the full year totals for both 2006 and 2007), and reserves for directors and officers liability (D&O) and errors and omissions liability (E&O) claims resulting from the subprime mortgage meltdown and the subsequent credit crisis ($9.6 billion in ultimate losses over accident years 2007, 2008 and 2009, according to Advisen forecasts). Through nine months of 2008, the U.S. property & casualty industry's net income after taxes fell 85 percent to $7.3 billion according to A.M. Best. After-tax return on equity (return on surplus), was only 1.4 percent for the nine month period; down from 9.5 percent for the same period of 2007. Best projects the first full-year underwriting loss since 2005. >
Advisen estimated the property and casualty insurance industry was roughly $100 billion overcapitalized as of the end of 2007. In other words, policyholders’ surplus – statutory accounting terminology for the capital supporting underwriting operations – needed to be reduced by about $100 billion through losses, dividends, share buy-backs or other means to bring insurance supply in line with demand. U.S. policyholders’ surplus declined $36.8 billion, or 7.0 percent, for the 12 months ended September 30, 2008, according to A.M. Best. Consultancy Towers Perrin forecasts as much as an $80 billion decrease in surplus by the end of 2008. >
While $80 billion represents a significant chunk of the $100 billion in excess capacity – and moves the market much closer to the bottom of the soft market cycle – the demand side of the supply-and-demand equation also has changed since the end of 2007. According to the International Monetary Fund, the global economy is now in a recession, with growth projected at 2.2 percent for 2009, down from 3.7 percent projected for 2008. The IMF projects that advanced economies as a group will contract 0.3 percent, with the U.S. contracting 0.7 percent. >
As companies downsize, the demand for insurance not only decreases, it decreases at a pace faster than the contraction of the overall economy. While going without insurance is not an option for most companies, many will look for ways to slash their insurance bills. An obvious option is to raise retentions (though perhaps a short-sighted one in a soft market, when some policies are priced below cost). The use of captives and other alternative risk financing mechanisms will increase. More companies will gravitate to low-cost providers, even if it is necessary to loosen financial security criteria. These are typical responses to hard market conditions, but it is likely companies will resort to them even before the market turns as they are squeezed by a deteriorating economy. All these factors will help prolong the current soft market. >
Advisen forecasts that the present soft market will have a “soft landing” in the second quarter of 2009. In the absence of very large insured natural catastrophes, underwriting losses combined with anemic investment returns should begin to exert upward pressure on rates by the fourth quarter of 2009 or the first quarter of 2010. One or more large catastrophes could accelerate the process. Conversely, deeply deteriorating economic conditions could delay the turn in the market.>
The AIG effect >
“AIG has intensified its efforts to increase its market share, or at least preserve it,” complained Liberty Mutual Group chairman, president and CEO Edmund F. Kelly during a conference call with analysts. “In fact, it's fair to say they are doing some very stupid things in the market.” Kelly isn’t alone in his criticism of American International Insurance Group insurance companies. Senior executives from several other companies made similar observations to analysts. >
After narrowly averting bankruptcy in September, AIG has had to reassure nervous policyholders that the insurance operations are viable while fending off attacks by newly emboldened competitors. With an 11 percent market share, AIG is the largest commercial lines insurer in the United States. If the company were to slash premiums to retain market share, the short term impact would likely be an intensification of soft market conditions. However, based on a recent Advisen poll of 17 commercial lines brokers, AIG appears to be competing vigorously, but not irresponsibly. Brokers generally concurred that AIG should not be singled out for driving down rates – other insurers also are fueling the soft market. One broker commented that some insurers are so obsessed with winning AIG customers that they, not AIG, are more responsible for cutthroat competition. >
A weakened AIG battling for renewals could prolong soft market conditions in some competitive sectors. AIG is perceived by its competitors as vulnerable. As a result, competition for its clients will remain intense. This heightened level of competition may keep price levels in some segments of the commercial lines market depressed after economic factors indicate the market should be hardening. >
The coming hard market >
One or more very large catastrophe losses could trigger a sudden and sharp increase in insurance prices. If, however, catastrophe losses are mild-to-moderate in 2009, average commercial insurance prices will begin to slowly creep higher in the fourth quarter of 2009 or the first quarter of 2010. Not every line of business will increase at the same pace. Premiums already have increased for financial institution D&O and E&O, where claims are up sharply because of the meltdown of the subprime mortgage market and the ensuing credit crisis. The reinsurance market will firm up sooner than the overall primary insurance market, placing upward pressure on heavily reinsured lines such as excess liability. Workers compensation, which saw premiums fall steeply as a result of reforms in several large states in 2005 and 2006, has largely stabilized and is likely to see premiums begin to drift higher by mid-2009. Property insurance pricing will remain soft through 2009, with premiums in some catastrophe-prone regions, which experienced triple digit increases in many cases after the 2005 hurricanes, continuing to fall into 2010 if there are no major loss events. >
Typically, rising premiums attract new capacity to the insurance market. Business-friendly offshore domiciles – especially Bermuda – make it comparatively simple to quickly launch new insurance and reinsurance companies to take advantage of higher rates. Between 2000 and the end of 2003, for example, investors pumped over $20 billion into new companies in the U.S. and Bermuda formed specifically to capitalize on the perceived opportunities of a hardening market. Additionally, new forms of short-term capacity such as catastrophe bonds and reinsurance sidecars attract opportunistic investors that may not be interested in longer-term commitments of capital to traditional insurance companies. >
The influx of new capacity, though intended to take advantage of rising premiums, increases competition and eventually chokes the hard market. In the current economic environment, however, skittish investors, dysfunctional credit markets and deleveraged hedge funds may mean that much less capital will be available to fund new insurance and reinsurance companies or for investments in alternative sources of capacity. As a result, the coming hard market may last longer than has been typical of past cycles. >
This Advisen Special Report was written by David Bradford, Executive Vice President, 917-445-3088, dbradford@advisen.com >
Headquartered in New York with subscribers to its information and risk analytics platform in North America, Bermuda, Europe, Asia and the Pacific Rim, Advisen serves the global commercial insurance marketplace. Advisen’s research team headed by 25-year market professional David K. Bradford, assembles data from its subscribers and from vendors to create the leading source of premium history. Call Advisen on +1.212.897.4800 in NY or +44(0)20 7929 5929 for more information about the source data used to formulate this report or to analyze trends in premiums, limits and retentions by peer group (market sector, size of company, public/private, etc.), or e-mail us on info@advisen.com . >
Advisen Ltd. equals success for insurance professionals, driving growth and profitability through the broadest platform of analytics and information services. Designed and evolved by risk and insurance experts, and used daily by more than 100,000 professionals, Advisen combines the industry’s deepest data sets with proprietary analytics and applications that drive the risk and insurance lifecycle. Advisen is headquartered in New York with offices in London. For more information, visit http://www.advisen.com/ or call 212.897.4800. >
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
http://www.insurancebroadcasting.com/insurance-news-123108-9.htm
Advisen Forecasts End Of Soft Market In Commercial Insurance Premiums Followed By A Gradual And Prolonged Hard Market >
PRICE INCREASES TO VARY BY INSURANCE PRODUCT >
New York. December 30, 2008 – Advisen Ltd., the leading provider of information, analytics, and technology to the global commercial insurance industry, today released a report predicting that the commercial insurance premium market cycle is close to its bottom and that general commercial insurance prices will begin increasing by the fourth quarter of 2009 or the first quarter of 2010. Advisen research is based on its own industry-leading database of premium history and its database of the financial performance of 13 million companies.>
“In years past, insurance companies recouped underwriting losses with investment income, but in 2008 the combination of underwriting losses and material investment losses means a five-year soft market is coming to an end,” said David K. Bradford, Advisen Executive Vice President and Chief Knowledge Officer. “The global recession may delay the return of hard market conditions by keeping demand for insurance down, but once the hard market sets in, it is likely to last longer than was the case in recent cycles.>
“In previous hard markets, price increases attracted new capital investment to the market, and the increase in insurance supply led to short hard market cycles,” continued Bradford. “In the current economic environment, where credit markets are essentially frozen, capital to create new insurance and reinsurance capacity may be in short supply. With capital scarce, the coming hard market could be longer in duration than those of the past several decades.”>
The full report is available below and covers the impact on pricing of many factors including the AIG crisis, the global economic crisis, and how buyers of commercial insurance are reacting to the market changes.>
Notes to editors:>
Rights are granted for republication in part or in full. The author is available for further quotes or comments. Contact David Bradford on dbradford@advisen.com or +1.212.897.4776. >
About the author: >
Dave Bradford is a co-founder of Advisen and leads the Research and Editorial team. He is Advisen’s senior insurance industry analyst and editor-in-chief of Advisen’s various publications. Prior to founding Advisen in 2000, Dave spent twenty years in underwriting, marketing and strategy development roles in the reinsurance industry. Most recently he was a senior vice president with Swiss Re and led the Global & National Division of Swiss Re America. Prior to Swiss Re, Dave was a senior vice president with Reliance Reinsurance Corp. He began his career as an actuarial analyst with Allstate’s Assumed Reinsurance Division. >
About the reports: >
Primary research for these reports was conducted using the Advisen.com information and analysis platform and its underlying databases, including data from its subscribers and from vendors to create the leading source of premium history. Headquartered in New York with subscribers to its information and risk analytics platform in North America, Bermuda, Europe, Asia and the Pacific Rim, Advisen serves the global commercial insurance marketplace. Call Advisen on +1.212.897.4800 in NY or +44(0)20 7929 5929 for more information about the source data used to formulate this report or to study premiums by peer group (market sector, size of company, public/private, etc.) or e-mail us on info@advisen.com. >
About Advisen >
Advisen manages business information and market data for the commercial insurance industry and maintains critical risk analytics and time-saving workflow tools for over 530 industry leading firms. Through its work for the broadest customer base among information service providers, Advisen delivers actionable information and risk models at a fraction of the cost to have them built internally. Designed and evolved by risk and insurance experts, and used daily by more than 100,000 professionals, Advisen combines the industry’s deepest data sets with proprietary analytics and offers insight into risk and insurance that is not available on any other system. Advisen is headquartered in New York For more information, visit www.advisen.com or call +1.212.897.4800 in New York or +44(0)20.7929.5929 in London. >
December 30, 2008 >
The Hard Market is Coming (But Don’t Hold Your Breath) >
An Advisen Special Report >
Executive Summary >
A five-year soft market, fueled by chronic overcapacity, is coming to an end. Following two years of record profits, losses from both underwriting and investment activities are destroying excess insurance capacity, signaling that the bottom of the commercial insurance pricing cycle is near. >
Average rate levels for commercial insurance will level off by the second quarter of 2009 and will begin to creep higher beginning the fourth quarter of 2009 or the first quarter of 2010. However, a deepening global recession may delay the return of hard market conditions by suppressing demand for insurance. In the absence of major natural catastrophes, which could trigger skyrocketing premiums, the hard market will be more gradual, and also more prolonged, than has been the case in recent cycles. >
Economic recession and the commercial insurance pricing cycle >
The commercial insurance pricing cycle is a function of the law of supply-and-demand: when the supply of insurance – as measured by the capital held by insurers to support underwriting – grows faster than the growth in demand for insurance, rates fall. Between the fourth quarter of 2003 and the second quarter of 2008, capital to support underwriting grew rapidly, driven by underwriting profits and strong investment returns. The rapid accumulation of risk capital fueled competition, driving down rate levels. >
In mature economies such as the U.S., Canada and Western Europe, the demand for insurance grows roughly at the same pace as the growth in the overall economy. Until the collapse of the U.S. subprime mortgage market thrust the global economy into a recession, economic growth was robust, though the increase in insurance supply far outstripped the growth in insurance demand. >
The present economic crisis impacts both the supply of and the demand for commercial property & casualty insurance. On the supply side of the equation, plummeting stock markets, frozen credit markets and, in some cases, investments in “toxic” mortgage-backed assets, caused many insurers to post investment losses in the third quarter. These investment losses are on top of underwriting losses driven by five years of price cutting, higher than average catastrophe losses ($24.9 billion, higher than the full year totals for both 2006 and 2007), and reserves for directors and officers liability (D&O) and errors and omissions liability (E&O) claims resulting from the subprime mortgage meltdown and the subsequent credit crisis ($9.6 billion in ultimate losses over accident years 2007, 2008 and 2009, according to Advisen forecasts). Through nine months of 2008, the U.S. property & casualty industry's net income after taxes fell 85 percent to $7.3 billion according to A.M. Best. After-tax return on equity (return on surplus), was only 1.4 percent for the nine month period; down from 9.5 percent for the same period of 2007. Best projects the first full-year underwriting loss since 2005. >
Advisen estimated the property and casualty insurance industry was roughly $100 billion overcapitalized as of the end of 2007. In other words, policyholders’ surplus – statutory accounting terminology for the capital supporting underwriting operations – needed to be reduced by about $100 billion through losses, dividends, share buy-backs or other means to bring insurance supply in line with demand. U.S. policyholders’ surplus declined $36.8 billion, or 7.0 percent, for the 12 months ended September 30, 2008, according to A.M. Best. Consultancy Towers Perrin forecasts as much as an $80 billion decrease in surplus by the end of 2008. >
While $80 billion represents a significant chunk of the $100 billion in excess capacity – and moves the market much closer to the bottom of the soft market cycle – the demand side of the supply-and-demand equation also has changed since the end of 2007. According to the International Monetary Fund, the global economy is now in a recession, with growth projected at 2.2 percent for 2009, down from 3.7 percent projected for 2008. The IMF projects that advanced economies as a group will contract 0.3 percent, with the U.S. contracting 0.7 percent. >
As companies downsize, the demand for insurance not only decreases, it decreases at a pace faster than the contraction of the overall economy. While going without insurance is not an option for most companies, many will look for ways to slash their insurance bills. An obvious option is to raise retentions (though perhaps a short-sighted one in a soft market, when some policies are priced below cost). The use of captives and other alternative risk financing mechanisms will increase. More companies will gravitate to low-cost providers, even if it is necessary to loosen financial security criteria. These are typical responses to hard market conditions, but it is likely companies will resort to them even before the market turns as they are squeezed by a deteriorating economy. All these factors will help prolong the current soft market. >
Advisen forecasts that the present soft market will have a “soft landing” in the second quarter of 2009. In the absence of very large insured natural catastrophes, underwriting losses combined with anemic investment returns should begin to exert upward pressure on rates by the fourth quarter of 2009 or the first quarter of 2010. One or more large catastrophes could accelerate the process. Conversely, deeply deteriorating economic conditions could delay the turn in the market.>
The AIG effect >
“AIG has intensified its efforts to increase its market share, or at least preserve it,” complained Liberty Mutual Group chairman, president and CEO Edmund F. Kelly during a conference call with analysts. “In fact, it's fair to say they are doing some very stupid things in the market.” Kelly isn’t alone in his criticism of American International Insurance Group insurance companies. Senior executives from several other companies made similar observations to analysts. >
After narrowly averting bankruptcy in September, AIG has had to reassure nervous policyholders that the insurance operations are viable while fending off attacks by newly emboldened competitors. With an 11 percent market share, AIG is the largest commercial lines insurer in the United States. If the company were to slash premiums to retain market share, the short term impact would likely be an intensification of soft market conditions. However, based on a recent Advisen poll of 17 commercial lines brokers, AIG appears to be competing vigorously, but not irresponsibly. Brokers generally concurred that AIG should not be singled out for driving down rates – other insurers also are fueling the soft market. One broker commented that some insurers are so obsessed with winning AIG customers that they, not AIG, are more responsible for cutthroat competition. >
A weakened AIG battling for renewals could prolong soft market conditions in some competitive sectors. AIG is perceived by its competitors as vulnerable. As a result, competition for its clients will remain intense. This heightened level of competition may keep price levels in some segments of the commercial lines market depressed after economic factors indicate the market should be hardening. >
The coming hard market >
One or more very large catastrophe losses could trigger a sudden and sharp increase in insurance prices. If, however, catastrophe losses are mild-to-moderate in 2009, average commercial insurance prices will begin to slowly creep higher in the fourth quarter of 2009 or the first quarter of 2010. Not every line of business will increase at the same pace. Premiums already have increased for financial institution D&O and E&O, where claims are up sharply because of the meltdown of the subprime mortgage market and the ensuing credit crisis. The reinsurance market will firm up sooner than the overall primary insurance market, placing upward pressure on heavily reinsured lines such as excess liability. Workers compensation, which saw premiums fall steeply as a result of reforms in several large states in 2005 and 2006, has largely stabilized and is likely to see premiums begin to drift higher by mid-2009. Property insurance pricing will remain soft through 2009, with premiums in some catastrophe-prone regions, which experienced triple digit increases in many cases after the 2005 hurricanes, continuing to fall into 2010 if there are no major loss events. >
Typically, rising premiums attract new capacity to the insurance market. Business-friendly offshore domiciles – especially Bermuda – make it comparatively simple to quickly launch new insurance and reinsurance companies to take advantage of higher rates. Between 2000 and the end of 2003, for example, investors pumped over $20 billion into new companies in the U.S. and Bermuda formed specifically to capitalize on the perceived opportunities of a hardening market. Additionally, new forms of short-term capacity such as catastrophe bonds and reinsurance sidecars attract opportunistic investors that may not be interested in longer-term commitments of capital to traditional insurance companies. >
The influx of new capacity, though intended to take advantage of rising premiums, increases competition and eventually chokes the hard market. In the current economic environment, however, skittish investors, dysfunctional credit markets and deleveraged hedge funds may mean that much less capital will be available to fund new insurance and reinsurance companies or for investments in alternative sources of capacity. As a result, the coming hard market may last longer than has been typical of past cycles. >
This Advisen Special Report was written by David Bradford, Executive Vice President, 917-445-3088, dbradford@advisen.com >
Headquartered in New York with subscribers to its information and risk analytics platform in North America, Bermuda, Europe, Asia and the Pacific Rim, Advisen serves the global commercial insurance marketplace. Advisen’s research team headed by 25-year market professional David K. Bradford, assembles data from its subscribers and from vendors to create the leading source of premium history. Call Advisen on +1.212.897.4800 in NY or +44(0)20 7929 5929 for more information about the source data used to formulate this report or to analyze trends in premiums, limits and retentions by peer group (market sector, size of company, public/private, etc.), or e-mail us on info@advisen.com . >
Advisen Ltd. equals success for insurance professionals, driving growth and profitability through the broadest platform of analytics and information services. Designed and evolved by risk and insurance experts, and used daily by more than 100,000 professionals, Advisen combines the industry’s deepest data sets with proprietary analytics and applications that drive the risk and insurance lifecycle. Advisen is headquartered in New York with offices in London. For more information, visit http://www.advisen.com/ or call 212.897.4800. >
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Tuesday, December 30, 2008
YEA!!! "Hard market will arrive next year: Advisen"
http://www.businessinsurance.com/cgi-bin/news.pl?newsId=14886
Business Insurance
Hard market will arrive next year: Advisen >
By Sally RobertsDec. 30, 2008>
Underwriting losses and anemic investment returns are putting pressure on rates, and absent a major catastrophe, insurance buyers should expect to start paying more for their commercial insurance beginning in the fourth quarter of 2009 or first quarter of 2010, according to a report released Tuesday by Advisen Ltd.
And while the global recession may delay the onset of the hard market by keeping insurance demand down, once that market sets in, it's likely to last longer than normal, David K. Bradford, New York-based Advisen's executive vp and chief knowledge officer, said in a statement. >
"In previous hard markets, price increases attracted new capital investment to the market, and the increase in insurance supply led to short hard market cycles," Mr. Bradford said. "In the current economic environment, where credit markets are essentially frozen, capital to create new insurance and reinsurance capacity may be in short supply." >
Advisen notes in its report that embattled insurance giant American International Group Inc. should not be singled out for driving rates down and prolonging soft market conditions, despite assertions to the contrary by some of AIG's competitors—assertions AIG has denied.>
According to an Advisen poll of 17 commercial lines brokers, AIG "appears to be competing vigorously, but not irresponsibly," Advisen said. One polled broker, Advisen noted, said that "some insurers are so obsessed with winning AIG customers that they, not AIG, are more responsible for cutthroat competition." >
As the hard market settles in, not every line of business will increase in price at the same pace, according to Advisen. The reinsurance market, for example, will firm up sooner than the overall primary market and will place upward pressure on heavily reinsured lines such as excess casualty. >
Property insurance pricing, on the other hand, will remain soft through 2009, with premiums in some catastrophe-prone areas continuing to fall into 2010 absent major losses, Advisen predicts. >
Premiums have already increased for financial institution directors and officers and errors and omissions liability coverages as a result of the subprime mortgage meltdown and ensuing credit crisis, Advisen said. And workers compensation premiums, which have largely stabilized as a result of reforms in several large states in 2005 and 2006, are likely to begin to edge higher by mid-2009. >
Copies of the full report can be obtained by e-mailing info@advisen.com.
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Business Insurance
Hard market will arrive next year: Advisen >
By Sally RobertsDec. 30, 2008>
Underwriting losses and anemic investment returns are putting pressure on rates, and absent a major catastrophe, insurance buyers should expect to start paying more for their commercial insurance beginning in the fourth quarter of 2009 or first quarter of 2010, according to a report released Tuesday by Advisen Ltd.
And while the global recession may delay the onset of the hard market by keeping insurance demand down, once that market sets in, it's likely to last longer than normal, David K. Bradford, New York-based Advisen's executive vp and chief knowledge officer, said in a statement. >
"In previous hard markets, price increases attracted new capital investment to the market, and the increase in insurance supply led to short hard market cycles," Mr. Bradford said. "In the current economic environment, where credit markets are essentially frozen, capital to create new insurance and reinsurance capacity may be in short supply." >
Advisen notes in its report that embattled insurance giant American International Group Inc. should not be singled out for driving rates down and prolonging soft market conditions, despite assertions to the contrary by some of AIG's competitors—assertions AIG has denied.>
According to an Advisen poll of 17 commercial lines brokers, AIG "appears to be competing vigorously, but not irresponsibly," Advisen said. One polled broker, Advisen noted, said that "some insurers are so obsessed with winning AIG customers that they, not AIG, are more responsible for cutthroat competition." >
As the hard market settles in, not every line of business will increase in price at the same pace, according to Advisen. The reinsurance market, for example, will firm up sooner than the overall primary market and will place upward pressure on heavily reinsured lines such as excess casualty. >
Property insurance pricing, on the other hand, will remain soft through 2009, with premiums in some catastrophe-prone areas continuing to fall into 2010 absent major losses, Advisen predicts. >
Premiums have already increased for financial institution directors and officers and errors and omissions liability coverages as a result of the subprime mortgage meltdown and ensuing credit crisis, Advisen said. And workers compensation premiums, which have largely stabilized as a result of reforms in several large states in 2005 and 2006, are likely to begin to edge higher by mid-2009. >
Copies of the full report can be obtained by e-mailing info@advisen.com.
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Tuesday, December 23, 2008
Industry trends in recessions...(And consumer outlays on insurance}
https://www.mckinseyquarterly.com/newsletters/chartfocus/2008_12.htm
McKinsey Quarterly
DECEMBER 2008
..."expenditures for groceries, reading materials, and other options that substitute for more expensive ones actually rose. So did outlays on insurance, health care, and, above all, education. "
Industry trends in recessions
Many companies can anticipate the performance of their sectors in a recession. McKinsey research shows that during the 1990–91 and 2001–02 downturns, for example, US consumers reprioritized their spending rather than cutting it across the board. Consumer spending dropped in discretionary categories like dining out, personal care products, and charitable donations. But expenditures for groceries, reading materials, and other options that substitute for more expensive ones actually rose. So did outlays on insurance, health care, and, above all, education.
To learn more about how long-term currents will probably affect the performance of the consumer goods, steel, technology, and chemical sectors during the present recession, read “Industry trends in the downturn: A snapshot” (December 2008). http://www.mckinseyquarterly.com/Industry_trends_in_the_downturn_A_snapshot_2264
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
McKinsey Quarterly
DECEMBER 2008
..."expenditures for groceries, reading materials, and other options that substitute for more expensive ones actually rose. So did outlays on insurance, health care, and, above all, education. "
Industry trends in recessions
Many companies can anticipate the performance of their sectors in a recession. McKinsey research shows that during the 1990–91 and 2001–02 downturns, for example, US consumers reprioritized their spending rather than cutting it across the board. Consumer spending dropped in discretionary categories like dining out, personal care products, and charitable donations. But expenditures for groceries, reading materials, and other options that substitute for more expensive ones actually rose. So did outlays on insurance, health care, and, above all, education.
To learn more about how long-term currents will probably affect the performance of the consumer goods, steel, technology, and chemical sectors during the present recession, read “Industry trends in the downturn: A snapshot” (December 2008). http://www.mckinseyquarterly.com/Industry_trends_in_the_downturn_A_snapshot_2264
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Thursday, December 18, 2008
Employees Willing to Steal Company Information When Faced With Layoff or Termination
http://www.worldatwork.org/waw/adimComment?id=30029&from=Work-Life%20News%20All
WorldatWork.org
Abstract of Survey Results: “Employees would be willing to work 80 hours a week, with 25% prepared to take a salary cut, if it meant they could keep their jobs… These same workers also admitted to conspiring to download vital, useful and competitive information to take with them if they were fired or laid off… 56% of workers are worried about losing their job… In preparation for that loss, the survey found, more than half of respondents admitted to downloading competitive corporate data and plan to use the information as a negotiating tool to secure their next job.”>
Employees Willing to Steal Company Information When Faced With Layoff or Termination>
Dec. 4, 2008 — Having willing employees is a good thing, but having employees who are willing to break the rules to keep their jobs — and at the expense to their employer — is not.>
A recent survey by Cyber-Ark Software found that more than one-third of the 600 office workers surveyed found that employees would be willing to work 80 hours a week, with 25% prepared to take a salary cut, if it meant they could keep their jobs. However, the survey found that these same workers also admitted to conspiring to download vital, useful and competitive information to take with them if they were fired or laid off.>
In these tough economic times it’s no surprise that the survey found 56% of workers are worried about losing their job. In preparation for that loss, the survey found, more than half of respondents admitted to downloading competitive corporate data and plan to use the information as a negotiating tool to secure their next job.>
The survey found:>
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
WorldatWork.org
Abstract of Survey Results: “Employees would be willing to work 80 hours a week, with 25% prepared to take a salary cut, if it meant they could keep their jobs… These same workers also admitted to conspiring to download vital, useful and competitive information to take with them if they were fired or laid off… 56% of workers are worried about losing their job… In preparation for that loss, the survey found, more than half of respondents admitted to downloading competitive corporate data and plan to use the information as a negotiating tool to secure their next job.”>
Employees Willing to Steal Company Information When Faced With Layoff or Termination>
Dec. 4, 2008 — Having willing employees is a good thing, but having employees who are willing to break the rules to keep their jobs — and at the expense to their employer — is not.>
A recent survey by Cyber-Ark Software found that more than one-third of the 600 office workers surveyed found that employees would be willing to work 80 hours a week, with 25% prepared to take a salary cut, if it meant they could keep their jobs. However, the survey found that these same workers also admitted to conspiring to download vital, useful and competitive information to take with them if they were fired or laid off.>
In these tough economic times it’s no surprise that the survey found 56% of workers are worried about losing their job. In preparation for that loss, the survey found, more than half of respondents admitted to downloading competitive corporate data and plan to use the information as a negotiating tool to secure their next job.>
The survey found:>
- In Holland, 71% of workers confessed to having already downloaded data, 58% in the U.S. and just 40% in the United Kingdom. >
- When confronted with the prospect of being fired tomorrow and ethics go out the door (so to speak), 71% surveyed declared they would definitely take company data with them to their next employer. >
- Top of the list of desirable information is the customer and contact databases, with plans and proposals, product information, and access/password codes all proving popular choices. HR records and legal documents were the least most favored data that employees were interested in taking. >
- 46% said a layoff rumor would make them look for the layoff list. 50% said they would try to use their own access rights to snoop around the network; if that failed, those same employees would consider bribing a friend in the IT department to do it for them. >
While employees revealed they would take information prior to leaving an employer, the survey also found that employees believe it’s becoming harder to take sensitive information out of the company: 71% in the U.K. and 46% in Holland said it was difficult. However, only 38% of U.S. respondents said it was difficult to sneak information out.>
The survey also found:>
- 50% of U.S. workers said they were prepared to work 80-hour weeks to keep their job; just 37% in Holland and 27% in the U.K. said they would put in the extra hours >
- 15% of U.S. workers said they would consider blackmailing the boss and 26% said they would buy the next round of drinks for a year in an effort to keep their job >
- Just 3% of U.K. workers said they would consider bribery; only 6% in Holland and 2% in the U.K. were willing to buy drinks. >
Survey MethodologyThe survey into “The Global Recession and Its Effect on Work Ethics” was carried out by Cyber-Ark’s team of researchers amongst 600 office workers on Wall Street, New York, Docklands London and at an International event in Amsterdam Holland.>
Contents © 2008 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.>
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
Monday, December 1, 2008
What's driving the soft market? Industry analysts point to a new set of forces
Rough Notes 11/2008
http://www.roughnotes.com/rnmagazine/2008/november08/11p046.htm
Critical Issue Report
What's driving the soft market?
Industry analysts point to a new set of forces
By Phil Zinkewicz
Insurance industry analysts and observers generally agree that the property and casualty insurance business is currently in a soft market. Fair enough. But the question must be asked: What is driving this particular soft market?
Those of us who have been around long enough can remember the soft market of the early 1980s, which was driven by excessively high interest rates. Property and casualty insurers succumbed to the siren song of high investment yields and began writing even the most volatile business at bargain rates, much to their chagrin a few years later. Then there was the extended soft market of the 1990s, which was driven by a booming stock market. Here again, cash flow underwriting dominated the business of insurance.
However, this soft market is different. There are no soaring interest rates, and the stock market is certainly not booming. Moreover, the economy in general is in the doldrums. In other words, there are no outside forces influencing underwriting decision making. The fall-off in pricing is the result of the simple law of supply and demand. There’s too much capacity out there and not enough demand to absorb it. Is this bad for the industry? Analysts’ views on this question vary.
Recently, Standard & Poor’s Ratings Services said that it had revised its outlook for the U.S. commercial lines sector from stable to negative. S&P credit analyst John Iten said: “Our decision to revise this sector outlook reflects our concern over two issues—the ongoing decline in pricing for commercial lines and decreases in investment income. Price competition persists across virtually all commercial lines, with prices continuing to decline, albeit at a somewhat moderated pace in the second quarter.”
Iten continued: “Based on industry pricing surveys and information that companies provided in their second-quarter earnings releases, we believe pricing in the second quarter for renewal business declined at a mid-single-digit rate in most lines and a low-double-digit rate for new business. Although some companies and outside observers have suggested that the rate of deterioration might have bottomed out in the second quarter, rates are still declining steadily. Absent an extraordinary event, we do not see anything reversing the general downward direction of rates over the next six to 12 months.”
Over the next 12 to18 months, Iten said, the decline in rates will adversely affect underwriting results. “We expect that full-year 2008 underwriting results for most commercial lines writers will remain relatively strong, with the U.S. property/casualty industry’s combined ratio still less than 100%. However, we believe underwriting performance will deteriorate through the remainder of 2008 and through much of 2009.”
There is no question that S&P is painting a bleak picture of the industry’s current position, but is it really as bleak as all that? While Iten is understandably concerned about declines in pricing, he admits that the declines have been “at a moderate pace,” at least for the second quarter.
In past soft markets, where outside forces played a role, all caution was thrown to the wind and pricing dropped dramatically, causing great concern. With no cash flow underwriting motivation, however, it appears that insurers are doing their best to control this soft market. Iten noted that the industry’s combined ratio remains under 100. That’s not bad for a soft market in its fourth year. Check out previous soft markets and see what the loss ratios were back then.
A brighter view
Taking a more optimistic view of the industry’s status is Conning Research and Consulting. A forecast and analysis by Conning suggests that the property/casualty industry is “strong” and “should be able to withstand the current price deterioration.”
According to Conning analyst Clint Harris, “The outlook for the next three years, through 2010, is generally soft for the property/casualty industry as a whole. We project continued deterioration in underwriting margins and implied return on equity. However, the largest year-over-year increase in combined ratio is in 2008 and, while this reflects a return to normal catastrophe losses, much of this deterioration is self-inflicted, as premium prices and premium rate adequacy continue to fall.”
Stephen Christiansen, director of research for Conning, added: “Looking beyond this year, our forecast contains a somewhat more optimistic view of 2009 and 2010 because we anticipate a modest rebound in the economy and also a moderating competitive environment. We project a return to net premium rate increases beginning in some lines as early as 2009. In fact, we are already beginning to observe some insurers taking corrective actions in their markets because of poor results.”
Again, this situation is different from previous soft markets. In the past, only outside forces could bring insurers out of a competitive cycle—a fall in interest rates, a faltering stock market, a catastrophic occurrence. This soft market has at least some insurers, according to Conning, acting wisely.
Impact of mortgage crisis
Finally, there is analysis from the Insurance Information Institute (I.I.I.). Dr. Robert P. Hartwig, CPCU, I.I.I. president and an economist, commented on the mortgage crisis and its effects on the current property/casualty market. “The first quarter’s underwriting performance was influenced primarily by significant underwriting losses reported by many mortgage and financial guarantee insurers,” Hartwig said. “While it is not unusual for results in any given quarter to be driven by the experience of a small number of lines or by a specific event, it is rare for lines that account for just a sliver of industry premiums to produce large-scale impacts on industry performance,” he remarked.
Hartwig added, however, that “stripping out the mortgage and financial guarantee insurer results yields a combined ratio of 96.7, up from 92.1 in the first quarter of 2007 and 95.6 for all of 2007. The deterioration is generally in line with expectations and reflects the effects of a sustained, highly competitive pricing environment for most types of insurance, particularly commercial lines, as well as adverse claim frequency and/or severity trends in some key lines.”
Hartwig continued, “According to the Council of Insurance Agents and Brokers, commercial renewals for larger brokered accounts were down 13.5% during the first quarter. Of course, actual changes experienced by individual insurers can vary substantially, and few commercial insurers are actually reporting premium declines of this magnitude.”
Once more we see a soft market that has persisted for some years, but thus far nothing like the devastating soft markets of previous cycles. How much more problematic would this soft market be if insurers were foolishly chasing premium dollars for investment purposes as they have done so often in the past? Insurers are holding their ground this time around. And, as they might learn from the current soft cycle, that’s a good thing for the business over the long term.
The authorPhil Zinkewicz is an insurance journalist with more than 30 years’ experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements.
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
http://www.roughnotes.com/rnmagazine/2008/november08/11p046.htm
Critical Issue Report
What's driving the soft market?
Industry analysts point to a new set of forces
By Phil Zinkewicz
Insurance industry analysts and observers generally agree that the property and casualty insurance business is currently in a soft market. Fair enough. But the question must be asked: What is driving this particular soft market?
Those of us who have been around long enough can remember the soft market of the early 1980s, which was driven by excessively high interest rates. Property and casualty insurers succumbed to the siren song of high investment yields and began writing even the most volatile business at bargain rates, much to their chagrin a few years later. Then there was the extended soft market of the 1990s, which was driven by a booming stock market. Here again, cash flow underwriting dominated the business of insurance.
However, this soft market is different. There are no soaring interest rates, and the stock market is certainly not booming. Moreover, the economy in general is in the doldrums. In other words, there are no outside forces influencing underwriting decision making. The fall-off in pricing is the result of the simple law of supply and demand. There’s too much capacity out there and not enough demand to absorb it. Is this bad for the industry? Analysts’ views on this question vary.
Recently, Standard & Poor’s Ratings Services said that it had revised its outlook for the U.S. commercial lines sector from stable to negative. S&P credit analyst John Iten said: “Our decision to revise this sector outlook reflects our concern over two issues—the ongoing decline in pricing for commercial lines and decreases in investment income. Price competition persists across virtually all commercial lines, with prices continuing to decline, albeit at a somewhat moderated pace in the second quarter.”
Iten continued: “Based on industry pricing surveys and information that companies provided in their second-quarter earnings releases, we believe pricing in the second quarter for renewal business declined at a mid-single-digit rate in most lines and a low-double-digit rate for new business. Although some companies and outside observers have suggested that the rate of deterioration might have bottomed out in the second quarter, rates are still declining steadily. Absent an extraordinary event, we do not see anything reversing the general downward direction of rates over the next six to 12 months.”
Over the next 12 to18 months, Iten said, the decline in rates will adversely affect underwriting results. “We expect that full-year 2008 underwriting results for most commercial lines writers will remain relatively strong, with the U.S. property/casualty industry’s combined ratio still less than 100%. However, we believe underwriting performance will deteriorate through the remainder of 2008 and through much of 2009.”
There is no question that S&P is painting a bleak picture of the industry’s current position, but is it really as bleak as all that? While Iten is understandably concerned about declines in pricing, he admits that the declines have been “at a moderate pace,” at least for the second quarter.
In past soft markets, where outside forces played a role, all caution was thrown to the wind and pricing dropped dramatically, causing great concern. With no cash flow underwriting motivation, however, it appears that insurers are doing their best to control this soft market. Iten noted that the industry’s combined ratio remains under 100. That’s not bad for a soft market in its fourth year. Check out previous soft markets and see what the loss ratios were back then.
A brighter view
Taking a more optimistic view of the industry’s status is Conning Research and Consulting. A forecast and analysis by Conning suggests that the property/casualty industry is “strong” and “should be able to withstand the current price deterioration.”
According to Conning analyst Clint Harris, “The outlook for the next three years, through 2010, is generally soft for the property/casualty industry as a whole. We project continued deterioration in underwriting margins and implied return on equity. However, the largest year-over-year increase in combined ratio is in 2008 and, while this reflects a return to normal catastrophe losses, much of this deterioration is self-inflicted, as premium prices and premium rate adequacy continue to fall.”
Stephen Christiansen, director of research for Conning, added: “Looking beyond this year, our forecast contains a somewhat more optimistic view of 2009 and 2010 because we anticipate a modest rebound in the economy and also a moderating competitive environment. We project a return to net premium rate increases beginning in some lines as early as 2009. In fact, we are already beginning to observe some insurers taking corrective actions in their markets because of poor results.”
Again, this situation is different from previous soft markets. In the past, only outside forces could bring insurers out of a competitive cycle—a fall in interest rates, a faltering stock market, a catastrophic occurrence. This soft market has at least some insurers, according to Conning, acting wisely.
Impact of mortgage crisis
Finally, there is analysis from the Insurance Information Institute (I.I.I.). Dr. Robert P. Hartwig, CPCU, I.I.I. president and an economist, commented on the mortgage crisis and its effects on the current property/casualty market. “The first quarter’s underwriting performance was influenced primarily by significant underwriting losses reported by many mortgage and financial guarantee insurers,” Hartwig said. “While it is not unusual for results in any given quarter to be driven by the experience of a small number of lines or by a specific event, it is rare for lines that account for just a sliver of industry premiums to produce large-scale impacts on industry performance,” he remarked.
Hartwig added, however, that “stripping out the mortgage and financial guarantee insurer results yields a combined ratio of 96.7, up from 92.1 in the first quarter of 2007 and 95.6 for all of 2007. The deterioration is generally in line with expectations and reflects the effects of a sustained, highly competitive pricing environment for most types of insurance, particularly commercial lines, as well as adverse claim frequency and/or severity trends in some key lines.”
Hartwig continued, “According to the Council of Insurance Agents and Brokers, commercial renewals for larger brokered accounts were down 13.5% during the first quarter. Of course, actual changes experienced by individual insurers can vary substantially, and few commercial insurers are actually reporting premium declines of this magnitude.”
Once more we see a soft market that has persisted for some years, but thus far nothing like the devastating soft markets of previous cycles. How much more problematic would this soft market be if insurers were foolishly chasing premium dollars for investment purposes as they have done so often in the past? Insurers are holding their ground this time around. And, as they might learn from the current soft cycle, that’s a good thing for the business over the long term.
The authorPhil Zinkewicz is an insurance journalist with more than 30 years’ experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements.
***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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