NU Online News Service, Oct. 13, 1:10 p.m.EDT

SAN DIEGO—While property and casualty pricing seems to beflattening and even improving in some lines, excess andsurplus-lines professionals say they are hesitant to declare amarket turn due in part to the ongoing heavy presence ofstandard-lines carriers in traditional E&S business.

In an interview here at the National Association of ProfessionalSurplus Lines Offices annual conference, Judy Patterson, a propertyunderwriter at specialty-insurer Beazley says that for the marketto turn business needs to come back to E&S carriers, andstandard insurers have to start pulling back.

“That, to me, is really what we need to see before I'll say itlooks like a hard market's coming,” she says. “It's nice to getsome rate increases, but it's not a hard market until we have thatinflux of new-business opportunities, and we haven't seenthat.”

Linc Trimble, senior vice president, head of Excess Casualty(U.S.) for Bermuda-based Torus Insurance Holdings Ltd., sees thesame standard-carrier activity in the casualty space. “I absolutelysee the standard markets heavily into the E&S space,” hesays.

Trimble says as the economy improves, there will be enoughpremium and profit in standard carriers' traditional markets andthey will begin to pull back.

“There's a lot going on,” he notes. “There's a soft insurancemarket, it's a bad economy, and you have an insurance industrythat's still a little bit overcapitalized. So if you think in termsof the investment-return equation, you have a denominator, which isthe capital base, that is a little artificially big right now, andthe numerator is the underwriting profit you can write from yourinsurance operations and a little from the investment side. Inorder to generate the returns, you have to generate premium.”

Insurers need premium, Trimble notes, to at least have a chanceat making an underwriting profit, and that is driving the heavycompetition. He also says insureds are buying less insurancebecause of the economy, complicating the equation.

The solution for the insurance industry may well be the solutionmany Americans in all walks of life are looking for: an improvementin the overall economy,” says Trimble.

Beazley's Patterson believes the sheer amount of losses standardcarriers are taking will begin to add up and the market may beginto turn by next year.

Speaking to why standard carriers have not reacted to thecatastrophe losses they have taken this year, she says some ofthose companies are so enormous that it is liketrying to turn a tanker ship on a dime. “You can't do it,” shenotes.

But she adds that between the second-quarter tornado losses,Hurricane Irene and other losses, the time may be coming forstandard carriers to re-evaluate the lines of business they arein.

Torus' Trimble adds, “2011 has just been a continuing saga ofdisasters.” But he says the insurance market has been absorbing thelosses so far.

Both he and Patterson do not believe the market will take a fastturn like what happened after 9/11 in the previous cycle.

“I think 9/11 was unique and unsettling in ways even beyondfinancial loss,” Trimble says. “For a lot of reasons, that was adifferent market change.”

As Patterson says, barring a dramatically huge event, theindustry will likely undergo a slow turn due to a series ofevents.

Another factor that may be prolonging the soft market is theintelligence of insurance companies now vs. past cycles.

“I think people are smarter,” Patterson says, noting there ismore control, scrutiny and rigor in all financial markets.

Trimble agrees, saying “companies are getting smarter—which isgood and bad. They're better in that insurance companies areimproving in their ability to assess a line of business against thecapital that's allocated to that class of business.”

Because of this, Trimble says market cycles in the future may beunlike those of the past. “My personal opinion [stressing this isnot Torus' philosophy] is I think market cycles will be product andsegment oriented, not broad brush. In the past, there was asea-level rise of rate movement. In the future, if it's a goodclass of business with good results in a certain sector, I thinkthe competition will remain until the potential is evaporated.However, if there are lines underwater, you'll see a hard market inthose sectors.”

The soft-market cycle continues for now. But its impact variesaccording to account size and even region.

Darren Marsh, managing director of Florida-based wholesaler SLBInsurance Group, says he has not seen the standard markets encroachas much on the smaller risks he deals with.

“I think that [standard carriers] have gotten burnt by somesmall accounts where they have big claims. And that's lost itsflavor for them now.”

Patterson agrees that account size impacts the level ofcompetition. She says generally the smaller accounts tend to holdrate better while the larger ones are more competitive, althoughshe says that distinction could fade this far into a softmarket.