End of Hard Market? Not So Fast, Experts ArgueIn a recent report, the Consumer Federation of America said itsresearch has determined that the end of the high- priced hardmarket is at hand for commercial insurance.

The CFA, a Washington, D.C.-based non-profit association of some300 consumer groups, said that with commercial insurance lossratios falling sharply and with rate hikes slowing over fourconsecutive quarters, the two trends indicate the hard markets endis months away.

“I have been through this thing twice before, and basically, thehard market is now over,” said J. Robert Hunter, director ofinsurance for the group. “Generally, the property hard market willbe all over by the middle of this year, and the liability willfollow about a quarter later,” Mr. Hunter told NationalUnderwriter.

For those who feel he may be overstating his case, Mr. Hunterargued: “If insurers say I am daydreaming, it's because they wantto keep the prices going up, which means more profits for them.They have every incentive to say it.”

“The hard part of the cycle is over. And insurers don't needmore surplus–theyve already got plenty compared to historicallevels.”

John Iten, director at Standard & Poor's Ratings Services inNew York, is skeptical. “I would agree that there has been aleveling-off of premium rates in property. But calling this the endof the hard market is still premature.”

There is still a lot of balance-sheet repair work that needs tobe done, which makes it difficult for insurers to try to expandtheir market share with more competitive pricing. “We don't see theend of the hard market–not this year and not likely in 2004. Whatthis [CFA] report is saying is certainly not what we are hearingfrom the companies,” Mr. Iten said.

“The bottom line is that there are still reasons for insurers tokeep the hard market,” added Laline Carvalho, another S&Panalyst. She said she is still seeing a barrage of reservestrengthening, and that if companies want to achieve betterreturnsabove the paltry 1.0 percent return for the industry lastyearthe hard market won't end anytime soon.

“There are still increases in liability, and rates for propertyare flattening out, but at a profitable level,” she said.

Sarah Hibler, analyst at New York-based Moody's InvestorsService, agreed that casualty rates still need to rise further,although property rates would stabilize. “Certainly in some linesthe rate increases have peaked, and in some lines rates will riseat a slower rate,” she said.

But it's difficult to imagine rates declining much becausecommercial lines insurers still have reserve deficiency problems.It's possible that the pricing has peaked, but factors such asreserve deficiencies, low interest rates and the volatile stockmarket favor the continuation of the hard market, Ms. Hiblerargued.

Others, like MarketScout, an online insurance exchange based inDallas, offered a somewhat different take on CFA's conclusion,saying that this time around, the hard market could linger onselectively, based on the quality of accounts.

“In past years, insurers would generally raise or lower ratesacross the board. But insurers are now doing much moreaccount-specific underwriting,” said Richard Kerr, chairman andchief executive officer at MarketScout. “What's taking place isthat underwriters are now becoming smarter in that they areappropriating rate increases to those with poor management. If youhave a good, quality account, you could see rate decreases,” Mr.Kerr said.

He disagrees with CFAs overall claim. “I would assume that sincethey are a consumer group, it's in their interest to say that thehard market is over. It's still too early to tell,” he said, butadded that the report is not too off the mark. He noted thatMarketScouts monthly barometer of composite price hikes forproperty, liability and professional insurance came in at 22percent in April”the lowest level in quite some time and down from29 percent the month before.”

Reproduced from National Underwriter Edition, May 12, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.