There is near universal agreement that carriers are achievingrate increases for property and casualty business, but analysts andcompany and brokerage executives struggle to say what can beexpected over the long term as the industry appears to be in newterritory from a pricing cycle standpoint.

J. Patrick Gallagher, president and CEO of brokerage Arthur J.Gallagher, said at yesterday's Keefe, Bruyette & WoodsInsurance Conference in New York that the current rate environmentis unique relative to the prior three market cycles he has seen.Rates are beginning to firm, he notes, but the industry is notseeing the “spike recovery” in rates typical of a hard-marketturn.

In fact, Gallagher said he believes there will not be a classichard market in this cycle, and he believes that is a good thing.Typical hard markets, he explained, are marked by short-livedradical rate increases, a lack of coverage availability, and a rushto surplus lines for some risks. Now, the industry is insteadseeing moderate increases, continued coverage availability, and andorderly shift of some risks to the surplus-lines market.

The change in this market cycle, Gallagher said, is becauseinsurers are in need of income-statement repair, not balance-sheetrepair. And he says this environment is better for clients, betterfor carriers, and great for brokers. In a traditional hard market,he said, clients walk away from the process angry at their brokersand insurers as rates spike and coverage availabilityconstricts.

In its recent “Six Months 2012 P&C Industry Review,” ALIRTInsurance Research, based in Windsor, Conn., also notes the unsuredirection of the market, stating that opinions seem to be mixedregarding whether the industry will see a hard market, or atapering off of higher prices given underlying financial conditionsin the marketplace.

The ultimate direction, ALIRT says, is in the hands of thecompanies and brokers. “Company managements cannot control theweather or global investment conditions, but they can controldecisions tied to pricing, terms and conditions, and riskselection,” ALIRT says. “There is evidence that companies–despitedecent capital positions–are beginning to display this underwritingdiscipline.”

ALIRT adds that brokers' ability to “sell” higher prices toinsureds “may be critical for this incipient hardening market togather momentum.”

William R. Berkley, chairman and chief executive officer of W.R.Berkley Corp., said at the KBW conference that he believes theindustry is only at the beginning of a market-cycle turn, and headded that he expects his company's relative performance in themarketplace to improve as the cycle turns further.

He outlined his company's strategy of growingthe most when the market is on its way up, and letting business gowhen prices start to decline.

When W.R. Berkley released its second-quarter results, Berkleysaid at the time that he believes rates will continue to see upwardpressure as companies begin to realize their weakening loss-reservepositions.

Reports have shown the industry's reserve position overallremains positive, although ALIRT and a recent Moody's InvestorsService report on the commercial-insurance industry both reiteratedthe feeling that reserve margins will continue to thin goingforward.

“Moody's reserve analysis as of year-end 2011 suggests thatstandard commercial-lines insurers, in aggregate, continue to holdoveral modestly positive margins of 1-2 percent of carriedreserves, but that reserve redundancies have steadily diminishedover the past five years,” says Moody's.

ALIRT also notes a slowdown in commercial-lines reservereleases, stating that 95 percent of all 2012 first-half reservereleases for its composite of 50 U.S. insurers came frompersonal-lines-predominant companies.

For his part, Berkley expressed skepticism at the KBW conferenceover competitors' reported loss ratios and reserve positions. Hesaid when he looks back at developed loss ratios over the last 25years, “I see we do 6 to 10 points better than the industry.” Withcompetitors reporting better loss ratios than W.R. Berkley's,Berkley said, “I have one of two things to conclude: either we'restupid…or they are underestimating their losses.”

If competitors are underestimating their losses, Berkley saidit's a certainty that accident-year reserves are inadequate.

Other views on the market cycle at the KBW conference weremixed. Frederick Eppinger, president and CEO of the HanoverInsurance Group, said pricing has been “excellent.” He said thecompany is getting the rates it wants, and is continuing to achieveincreases.

Mike McGuire, chief financial officer of Endurance SpecialtyHoldings, meanwhile, said he is still seeing continued pressure onrates.

Berkley notes that looking at insurance as one business doesn'treally make sense. “This isn't one business,” he said. “This is awhole lot of bits and pieces.”

Regardless of where the market is or might be heading, insurersneed to see more rate, according to Moody's. The ratings agency, inits Sept. 3 U.S. Commercial P&C Insurance Outlook, notes thatpricing trends remain “broadly positive,” but adds, “Pricingimprovement will need to continue in order for commercial insurersto further reduce accident-year loss ratios to acceptable returnlevels, especially with likely reduced benefit in 2013 and beyondfrom reserve releases on business written in prior years.”