NU Online News Service, March. 10, 11:05 a.m.EST

SCOTTSDALE, ARIZ.--An economicrecovery could halt the movement by standard carriers into marketstraditionally served by excess and surplus lines insurers, industryexperts said.

They made that prediction in interviews during the 2010 Mid-YearLeadership Forum last week of the Kansas City, Mo.-based NationalAssociation of Professional Surplus Lines Office Ltd.

While there were some differences in opinions about whether theeconomy is starting to rebound, representatives from wholesalebrokerages and an E&S insurer said that an economic recoverywould help to turn around soft market conditions that have led toincreased encroachment by standard carriers into traditionalE&S lines.

Michael Miller, president and chief operating officer ofScottsdale Insurance Company, said he believes the economy "is abig contributor to the soft market." He noted that there are justas many players in the market, but they are competing for risks ina shrinking economy, which is helping to drive competition.

"Everyone's reacting to what the economy is doing," headded.

Jim Roe, president of Indianapolis-based wholesaler and managinggeneral agency Arlington/Roe & Co., agreed. "Obviously anymarket is a measure of supply and demand. So right now, we've had,for the last number of years, a lot of supply, and with the economybeing down, there's less demand for insurance," he said.

Participants in the specialty and surplus lines area "just tryto be that relief valve for agents and customers that have aspecialty need or a surplus lines need," Mr. Roe remarked.

Standard carriers, Mr. Miller noted, started dipping intoE&S lines about three-to-four yeas ago. Typically, heexplained, standard carriers will write E&S lines in softmarkets, and then back out again as combined ratios rise and theyre-examine their books.

But so far, Mr. Miller said, the standard companies arecontinuing to see manageable combined ratios and rates of return inthe traditional E&S lines.

Mr. Roe said insurers' loss ratios are up, but they're writingmore premiums to fuel top-line growth. He added that, for manyinsurers, it is about "premium, not profit."

A lack of hardening in reinsurance rates is compounding theproblem, he said.

While there may be unique aspects to this soft market because ofthe economy, Mr. Roe and Mr. Miller both noted that soft marketconditions with falling rates are nothing new for the insuranceindustry.

Mr. Roe said that in the Midwest, where his firm is based, thereare so many regional and mutual companies that take care of mostagents' needs that there are never as many E&S opportunitiesthere as compared to coastal areas. He said capacity seems to cometo the Midwest "anytime the wind blows or the earth shakes" on thecoast.

"We have a perpetual soft market there," Mr. Roe said, addingthat the market never gets hard, just less soft.

Mr. Miller said this soft market has actually been relativelyshort compared to other soft markets, and he added that theindustry spends the majority of its time in soft marketsanyway.

Alan Jay Kaufman, chairman, president and CEO of Burns &Wilcox in Farmington Hills, Mich., also said this soft market hasbeen about on par with previous ones.

He added, though, that the current market has been a "perfectstorm" of events leading to soft market conditions--no majorhurricanes, a lot of available capital and a struggling economy. Hepredicted more hard times ahead.

For E&S insurers in this market, they have a choice whetherto try and compete with standards, or to back off and move to otherareas, according to Mr. Kaufman. The prudent companies, he noted,are stepping back and not going toe-to-toe with the standardmarkets.

The experts had differing views as to when the economy willrecover.

Mr. Kaufman and Mr. Roe both said they have seen no change inthe economy. Businesses are still struggling, they said, and Mr.Roe--speaking for the Midwest--mentioned that Michigan inparticular remains in trouble.

Mr. Miller, though, said he has seen some signs ofrecovery--pointing to more visitors in the Scottsdale area, andmore people in general in restaurants and airports.

"Attitudes are improving," he said, adding that the economy isdriven by attitudes.