That is the message posted on billboards across the nation by a person who has been identified only as an "unknown optimist" in media reports.
Whoever the person or group behind the signs might be, it seems unlikely that they work in the excess and surplus lines segment of the property and casualty insurance industry. While a handful of E&S executives interviewed by NAPSLO Daily said they see slight indications of economic recovery, most do not foresee any near-term favorable impact on their businesses, which continue to be tested in bread-and-butter classes like construction and transportation.
"When you look at the amount of business in the commercial insurance industry that is dependent upon the construction industry and on the movement of goods and services, that worries me," said Jonathan E. Michael, chief executive officer of RLI Corp. in Peoria, Ill.
"Trucks are not on the road as much anymore. That hurts the commercial insurance industry," Mr. Michael said.
"We are seeing [some] contractors that go out of business, where we have to return premiums," he added. For others, "we're seeing their business off 20, 30, 50 percent, depending on the contractor."
"When we're talking about our rate base being revenue, and that being off 20 or 30 percent, to begin to charge a rate against that--already our premiums are going to be going down," he said, describing the insurance impact of the significant economic blows pelting the construction industry.
"That needs to come back for the insurance business to begin to recover," Mr. Michael said, noting that the broad-based trends, which are currently indicating a more stable economy--such as improving GDP trends and unemployment trends--are not enough to help commercial insurers.
Tony Markel, vice chairman of Markel Corporation, had a similar assessment. "I'm not a real student of economic barometers, but I think I'm reasonably close to the ground in picking up things [and] I frankly am having difficulty picking up any strong signs of optimism at this stage of the game.
"We were significant players in contracting business, and clearly, I don't see really see any signs of the housing market, the real estate market, or the contracting business rebounding right now," he said.
Signs of recovery that will impact insurance premiums are few and far between in wholesale brokers' offices as well. They're so infrequent, in fact, that the smallest indication of economic relief produces a round of cheers in some corners--like the processing unit of All Risks, Ltd., a wholesale brokerage in Hunt Valley, Md.
"You'll hear a yell over there at the desk every now and again that they got an AP [additional premium] audit," reported Matt Nichols, All Risks' president. That is "fairly amusing when you think about it, because that was a significant revenue flow year after year for an awfully long time."
Now "it's an oddity," he said, explaining that the AP audits occur at the end of the policy--"when you actually audit the policy, [the customer] actually owed us money rather than us having to return money or a situation where there was nothing owed one way or another" because their payrolls were higher than they had originally projected.
"An AP audit is something that we did not see for darn near a year" prior to the recent ones that spurred a mini-celebration.
Elsewhere, NAPSLO's insurer and broker members described limited areas of economic recovery--and opportunities for the E&S segment.
"We are encouraged by the slight improvement we are seeing in financial-related problems such as arson, non-pay cancellations, audits returned for collection and decreasing exposure bases," said Christopher Timm, president of Century Insurance. "We are hopeful that our construction business--both binding authority and brokerage--will be less stressed by exposure-base reductions this year," he added.
Jim Carey, president of Admiral Insurance Company, said, "We have seen strong results in some of our niche segments," highlighting a specialty program for the oil and gas industry as an example of a segment that "has clearly done better than other commercial risks."
Kevin Westrope, president and CEO of Kansas City, Mo.-based Westrope, identified the multifamily apartment house business as an area of the economy that is doing very well. "Occupancy rates on those properties are running fairly high today," he said, speculating that this is a longer-term effect of the mortgage crisis. "Folks who were in houses that maybe were on the margin of whether or not they should have been...are back, and [they] need places to live," he reasoned.
At Mercator Risks in Hartford, Conn., Robert Sargent, executive vice president, said that while economic conditions seem to have improved from a macro perspective, his firm's specialty--professional liability business--"is still seeing signs of distress."
"Businesses continue to reduce insurance buying, revenue and employment levels are not growing, and businesses are continuing to close. We anticipate that some of these signs are lagging indicators, and we are moderately optimistic about opportunities ahead," Mr. Sargent said.
At Burns & Wilcox in Farmington Hills, Mich., Chief Underwriting Officer David Price said his firm has found success in "tailoring coverage for the [poorer] economic conditions," targeting classes such as vacant buildings and renovation risks.
Mr. Price also noted that with 38 offices in multiple states, Burns & Wilcox has been able to take advantage of the uneven pace of economic recovery, although he did not identify which states were recovering the fastest.
Giving the perspective of an economic expert at last year's NAPSLO annual convention in October, Robert Hartwig, president of the New York-based Insurance Information Institute, did give a state-by-state assessment.
"The reality is we don't have one economy, we have 50 economies," Mr. Hartwig said. While some parts of the country won't start recovering for a year, "there's a swath of the United States from Texas up to the Mountain states and through the Great Plains" that is doing relatively well, he said. The states that have stronger economies now are agriculture-intensive, energy-intensive and natural resource-intensive states, he said
Using job growth as a measure of recovery, Mr. Hartwig also pointed to North Dakota as the state with the lowest unemployment rate, followed by Wyoming and South Dakota.
On the other hand, heavy industrial states like Ohio, Michigan and Indiana continue to do poorly, he said. Also states like Florida, Nevada and Arizona, which were hit hardest by the burst of "the real estate bubble," are also laggards in terms of economic recovery, he said.
Although Mr. Hartwig spent time identifying industries and regions with potential growth prospects for E&S market participants, he cautioned that economic cycles and underwriting cycles historically have little connection with one another.
On a positive note, he said, recoveries last a long time--putting the typical length at six-to-eight years.
He identified 11 industries which he believes have the best growth potential over the next 10 years:
- Health care
- Energy (traditional)
- Alternative energy
- Natural resources
- Light manufacturing
- Export-oriented industries
Seek business with firms that have government contracts, he told the crowd, referring to the first category.
Burns & Wilcox CEO Alan Jay Kaufman may have been listening to Mr. Hartwig--or at least he seemed to be on the same wavelength when he shared his thoughts on areas of opportunity for his firm with the NAPSLO Daily recently.
"We are seeing opportunity in a number of emerging industries: bio-tech, high-tech, alternative fuels and renewable energy," he said. "We are well-positioned to meet the needs of the burgeoning health care sector," he added. That sector "will be in a high growth mode for many years to come, given the demographics of the United States--longer life spans and aging baby boomers being two key factors."
Mr. Kaufman also said the "trickle- down effects of the American Recovery and Reinvestment Act of 2009 (Stimulus Package) are starting to show up in certain sectors, such as contractors involved in infrastructure work. As these contractors take on the jobs, they of course need to purchase insurance," he asserted.
Highlighting a final area of opportunity, he said: "Our forte has always been the small-to-medium commercial lines account. This expertise is serving us well as the so-called 'second-stage' companies (defined as having 10-99 employees and $1-to-$50 million in annual revenue) are increasingly the growth engine of the American economy."