There is probably little debate that 2009 was one of thetoughest years in a long time for insurance agents and brokers, whoconfronted the dual challenges of a continued soft commercial linesmarket and the lingering effect of the recession, which shrunkinsurable exposures, reduced commissions and inhibited organicgrowth.

Indeed, 2009 fourth-quarter property and casualty premium ratescontinued to fall at the rate of 6 percent on average–unchangedfrom the third quarter, according to the Council of InsuranceAgents and Brokers' “Commercial P/C Market Index Survey.”

The survey found that lower demand for insurance continued toput pressure on rates as carriers competed for new business.

“We don't expect to see pricing turn upward until demand picksup and capacity diminishes,” said CIAB President Ken A. Crerar.

The fourth-quarter and year-end results for the five majorpublicly traded insurance brokers was mixed, reflecting theeconomic reality and ongoing soft market.

Marsh & McLennan Inc., parent company of insurance brokerMarsh and reinsurance broker Guy Carpenter, along with DaytonaBeach, Fla.-based broker Brown & Brown both reported a drop infourth-quarter net income. Aon, Willis and Arthur J. Gallagherreported net income gains, helped by cost controls.

Of the five, only Willis reported an overall gain in organicgrowth, with new business gains helping boost income by 2percent.

Brown & Brown suffered the biggest hit, recording a drop of8 percent.

Cory Walker, chief financial officer for Brown & Brown, saidthe firm took a major hit in commissions and fees in the fourthquarter, which reduced contingent commissions by more than $4.4million. Earnings were also undermined by losses in its investmentsand other income.

The brokers were not optimistic about 2010 when they spoke toinvestment analysts in February.

Brown & Brown President and Chief Executive Officer J.Powell Brown said there appeared to be no short-term prospect of aturnaround, as the market remains extremely competitive and pricesare still down, or at best flat.

“If you believe what you read and hear about the economicoutlook, it appears flattish,” said Mr. Brown. “How that translatesinto our business, we don't know.”

Marsh Chair and CEO Daniel S. Glaser said his brokerage'srevenues were challenged by clients' cost consciousness to a degreethat “we have never seen before,” adding that many buyerssubstantially cut discretionary spending, affecting their insurancepurchasing habits.

“I think the economic impact is the single biggest factor,” hesaid. “It is much broader than the insurance cycle. The insurancecycle over my career…has been soft. I think Marsh can improve inany sort of insurance cycle. The economic impact has beenconsiderable.”

Aon President and CEO Greg Case said that for 2010 the brokerageexpects to face continuing headwinds without dramatic improvementduring the year. The firm turned around a 2008 fourth-quarter $6million net loss to net income of $198 million for the fourthquarter of 2009.

Arthur J. Gallagher, which reported that fourth-quarter profitsrose 72 percent, saw its growth primarily from expense controlincluding the elimination of 4 percent of its work force in January2009 and 2010, plus the integration of Liberty-Wausau business itacquired in 2009.

J. Patrick Gallagher Jr., the brokerage's chair, president andCEO, said he believes 2010 will be another tough year for the firm,as premium prices remain in their soft market state and the economymakes a slow recovery.

Willis Group Holdings Chair and CEO Joe Plumeri was the mostoptimistic, as his firm reported net income grew 27 percent in thefourth quarter.

“The best thing I can say is that 2009 was an amazing year as wetackled a number of external and internal challenges,” he said. “Inthe middle of a soft market environment and a global recession, wedelivered.”

More recently, three insurance executives discussed variousaspects of the insurance market as they see it today.

Two executives with Kansas City, Mo., insurance brokerLockton–Gary Phillips, senior vice president of the FinancialServices Group, and Ray Beegle, senior vice president and Northeastproperty practice leader–said they viewed their respective marketpractices as far from turning hard, noting that competition forbusiness still remains the overriding drag on pricing.

On the directors and officers side of the insurance market, Mr.Phillips said that in terms of capacity, “there is a lot moresupply, and demand has stayed the same,” putting the damper onpricing.

One major problem insurers are having is that people are leavingcompanies and joining new insurers with their sights on starting upa new D&O operation. Those additional players, in turn, haveincreased the supply of capital in the marketplace, exacerbatingthe soft market, Mr. Phillips pointed out.

Any turn to a hard market has not materialized, he noted, as theissues over companies losing shareholder value over losses fromcredit default swaps has diminished. “The dust has settled,” hesaid.

Mr. Phillips said he did not see any change in direction for theD&O market for the remainder of the year, and there is nothingout there to indicate that there is any hardening in theoffering.

“Until the supply [in capital] is turned off by a merger or aninsurer going out of business, I do not see any change in the nextsix-to-12 months,” he said, predicting that the pricing environmentwould remain flat to moderately declining, with clients pursuingimprovements in their coverage in this buyer's market.

Property is a tale of two distinct marketplaces, according toMr. Beegle–catastrophe versus non-catastrophe, as well as newbusiness versus renewal.

While there is little competition for property-catastropherisks, non-catastrophe business is seeing aggressive competition.While a good catastrophe risk can see stable rates or even a modestdecrease, an equally good non-catastrophe risk can see pricereductions of 10-to-15 percent, he said.

For catastrophe risks, 2009 appeared to be steering toward ahard market, observed Mr. Beegle, but the benign hurricane seasonmeant a surplus of unused capacity, translating into a morecompetitive marketplace by Jan. 1 of this year.

When asked about comments from some insurance company executiveswho have complained about the irresponsible pricing of risk, Mr.Beegle said he has not seen any “real renegades out there.” But hecredited insurers with taking a realistic view of risk and pricingit appropriately in response to the amount of capacity that isavailable.

He did not see any major shift in the near term, but Mr. Beegleadded that catastrophe is a “fragile” line–noting that a majorcatastrophe or series of substantial disaster losses could cause a“different discussion” later this year.

On the wholesale side of the insurance market ledger, GlennHargrove–former CEO of Crump Inc., who is now president of thestart-up brokerage MarketScout Wholesale, a unit of the onlineDallas-based insurance exchange MarketScout–said the majorchallenge for wholesalers in the current market is finding theirvalue proposition. The line between retail and wholesale carrierhas blurred, he said, and wholesale brokers have to bring value tothe table to remain players in their own right.

“They have got to offer value or not be involved in theequation,” said Mr. Hargrove.

Wholesalers may be seeing stabilization in the percentage ofbusiness they deal in, but the ability to increase the business isnot gaining traction.

The major challenge, he believes, will be for those wholesalebrokers owned by private-equity firms. There was no intention onthe part of these investors to make a long-term commitment to thewholesale market, he believes, and with the economic crisis nowpassing, he thinks that segment is in for a lot of turmoil.

“We'll see how it all shakes out,” he said.

If producers cannot grow organically, there is always theopportunity to buy additional marketshare, and for the coming year,independent agency consultants say one revenue driver for someagencies–acquisitions–will begin to heat up in 2010 after a veryquiet 2009.

“Most feel the worst is over,” said Robert Lieblein, managingprincipal with Hales & Company.

With the worst of the economic crisis “bottoming out,” hebelieves there will be an uptick in demand this year. There was toomuch deviation between the buying and selling prices last year,running at about 4.5-to-5 percent of EBITDA (Earnings BeforeInterest, Tax, Depreciation and Appreciation), which meant there“was not a compelling reason to do a deal under those prices.”

While there may be some increase in M&A activity, Mr.Lieblein believes prices will remain low unless there is a majorentrant into the market to buy agencies.

He said he believes the time is ripe for a major acquisition inthe wholesale market, most likely coming from private equity.

Organic growth will remain difficult, he noted, so in order togrow, agents and brokers will need to find a way to differentiatethemselves in order to attract new business.

“Growth is hard to come by right now,” observed Tom Doran,senior vice president and principal for Reagan Consulting, afrequent “Best Practices” columnist for NationalUnderwriter. He said a survey of 110 firms conducted by Reaganof private agencies and brokerages found organic growth declined 2percent in 2009, while their profit margin was down 10 percent overthe previous year.

He expects 2010 to be flat, with some indication for minorimprovement. It will be a number of years before firms will see anysignificant turnaround, he added.

Despite the recent “spectacular deal” announced by insurancebroker Marsh of the Rutherfoord Agency–for which Reagan served as aconsultant–he did not see it as something to draw many conclusionsfrom.

“It will be a somewhat muted deal year,” he noted.

The most pessimistic assessment of the marketplace came fromJohn M. Wepler, president of Marsh Berry.

“We have seen a slight reversal from soft rates to slightlysofter,” said Mr. Wepler. “Agents can't count on a level market orhard market for 2010″ to improve their commissions.

Insurers are performing well and there is nothing to putpressure on rates, he noted. However, with the release of reservesthrough 2010, he said there is real hope for rate stability in2011.

Insurers are primarily concerned with losing market share atthis point, he explained, keeping rates soft and thereby placingagent compensation under attack.

To help their bottom line, some insurers, he noted, plan toreduce contingent income, while others intend to increase premiumvolume requirements (he placed the figure at 12- and 10 percent ofall insurers, respectively).

A lesser number intend to add growth requirements and improveretention requirements, while 3 percent plan to eliminatecontingent commissions altogether, he said.

To drive business, he suggested, agencies must gear themselvesto become high performers. That means driving organic growth andinvesting in the next generation of producers.

“Those that drop revenue can't cut expenses fast enough,” hepointed out, “while those that are growing do not worry.”