Close to four months after Hurricane Wilma put her exclamation mark on a tortuous and record-setting hurricane season, the future of the insurance marketplace remains as uncertain as the rebuilding of damaged homes and businesses.

While there are some clear indications as to where some lines of business are going, brokers in the excess and surplus lines market find they are working hard to place business and to understand insurers' appetites for risk throughout the Gulf region.

Still, there are opportunities for carriers willing to bet on the region's future growth prospects, they say.

“It might be a little early to forecast what is really going to happen,” said David Price, executive vice president and chief underwriting officer for Farmington Hills, Mich.-based wholesaler Burns & Wilcox. “Because of the magnitude of the recent hurricanes–particularly Katrina–we have had issues with finding out what the loss numbers of our carriers really are. And that affects their reinsurance [purchases].”

The uncertainty surrounding reinsurance cost is affecting renewals, and while Mr. Price has heard of some significant increases in catastrophe-exposed areas, “at this point the picture is a bit spotty,” he said.

“It is going to be a reinsurance-driven market for the next few months,” said Wayne Bates, associate vice president and director of the special risk division for Burns & Wilcox. There will be different responses at different times of the year as renewals come up and as insurers adjust to new reinsurance pricing realities, he said.

Meanwhile, each insurer is reacting differently based upon its individual loss history, he added. Mr. Bates said some underwriters were initially “bullish” in their insurance pricing forecasts but have since “backed down” on their pricing “more so than they had hoped”–some of which was in catastrophe-prone areas.

“Outside of the cat areas, we have not seen any significant increases in rates,” said Mr. Price. “Basically, it's been business as usual,” which Mr. Bates said translated into reduced rates in non-cat areas.

Emergency rules in Louisiana are artificially controlling the insurance market there, said Mr. Bates, not allowing carriers to increase premiums or leave markets at present.

John Wood, president of Specialty Risk Associates Inc., a wholesaler based in Shreveport, La., echoed Mr. Bates in saying there is a minimal amount of change taking place in the Louisiana marketplace.

Also noting the emergency regulations imposed by the state's insurance commissioner, Mr. Wood–who is a board member and treasurer of the Kansas City, Mo.-based National Association of Professional Surplus Lines Offices, Ltd.–added that there is also a degree of empathy with policyholders as they struggle to put their lives back together, which is keeping the market forces at bay.

However, Mr. Wood believes increases are inevitable. There will be changes in terms and conditions–with tighter underwriting guidelines and changes in insurer risk appetite as carriers reevaluate the aggregation of risk–especially New Orleans and the surrounding area.

“In the future we will see higher rates and deductibles,” said Mr. Wood. “Property will be the most affected, but there is a [qualification] to this–that out of all this destruction and suffering, there will be a rebirth that will offer opportunities to insurers to go in and write new business.”

“It will take years for all of this to shake out,” Mr. Woods added.

Despite the hurricanes, he called 2005 a good year for his firm. Business was flat, and considering there were long months where they could not write anything, “to be even, we did well,” he said.

There is new business, Mr. Wood pointed out, as contractors come in and do the clean-up and rebuilding, noting that these are the first signs of growth to take place in the devastated region.

The story is a similar one in Mississippi. Preston Gough, executive vice president and regional director of Southern Cross Underwriters in Jackson, Miss.–the managing general agency division of Birmingham, Ala.-based CRC Insurance Services–noted that five months after Hurricane Katrina, “we are seeing new opportunity for carriers to write business that we have not seen before.”

A lot of that business, such as in New Orleans, is confined to the construction trade for debris removal, roof repair and tree removal contractors. “There is still a lot of work, and a lot of opportunities that were not there before, but property is slow to build back,” he observed.

While he is confident the coastal regions wiped out by Katrina will rebuild much more quickly than New Orleans, “there is still a lot of discussion over improving building codes and what the state will require,” said Mr. Gough, who is also a former president of the King of Prussia, Pa.-based American Association of Managing General Agents.

While carriers might be hesitant to remain in the state, or at least be cautious about their aggregate underwriting, there appears to be no discussion of mass exodus among E&S underwriters, although a few have left, he said. “We see rumblings, but not a lot of action,” Mr. Gough noted.

One thing underwriters are doing is extending wind deductibles on inland business past the coast, with some carriers looking for wind deductibles on risks up to 200 miles inland. “You would expect some knee-jerk reactions to a storm the size of Katrina,” said Mr. Gough.

“Time heals, and going forward we expect to see better construction and nicer homes,” he observed. “And we'll pray we do not have another hurricane any time soon.”

In Florida, where Hurricanes Dennis, Rita and Wilma left significant losses, but not the devastation experienced by Katrina, the major issue for surplus lines is capacity, according to Gary Pullen, executive director of the Florida Surplus Lines Service Office–the state's stamping office, which acts as a semi-governmental body overseeing the wholesale market.

Surplus lines writers have continued to see steady premium growth in the state, he said, citing homeowners and property insurance, including mobile homes, and sharing some numbers through 2005.

From 2003 to 2004, total dollars of written premium increased 20 percent to $242 million up from $202 million. In 2005, written premium rose 25 percent to $303 million, he said. However, growth in the number of policyholders has not been as substantial, rising to 176,000 in 2004 from 161,000 in 2003, and to 193,000 in 2005–a 9 percent increase in both years.

One might expect a flight of business to surplus lines in the mobile homes segment, but this has not materialized, noted Mr. Pullen. In 2004 there were 14,641 policies, an increase of 641 over 2003, and in 2005 the market was flat.

He said Florida surplus lines premiums overall would probably increase by 20 percent in 2006–as it has for the past two years–but there would probably be capacity issues affecting new business, as underwriters look to limit exposures and spread the risk.

Ken Bolen, vice president of the commercial division for MacNeill Group Inc. in Sunrise, Fla., said capacity is already an issue, as insurers examine their books and control their aggregation of risks throughout the state. “It's more a capacity- than a price issue,” he said. “The rate structure is not driving business away. The problem is finding market.”

“Most markets are not willing to write new business,” added Ed Levy, an executive with MacNeill. “The willingness of a carrier depends on how willing they are to write that piece of business and lose something else to make room for it. Most carriers are sorting this out, trying to determine what it is they can't do and what they want to do.”

“On property, nothing is easy to write at this point,” Mr. Levy noted.

Mr. Bolen added that “the class of business is not so much the issue as the size of the risk.” A client who receives a renewal with a $20,000 increase in premium has no other market to turn to, noted Mr. Levy, underscoring the impact of the current capacity crunch.

Florida is a growth state, said Mr. Bolen, echoing the wholesale broker executives in other states who pointed to the growing opportunities for insurers willing to respond to them.

“People are not getting a sense of urgency,” according to Mr. Levy. “They are finding ways to get business placed and we are getting calls [from agents] asking if we can help. We are doing a lot of work to find placements.”

Mr. Bolen noted that on the casualty side, rates are firm with some softening. “We are earning our placements,” he said. “It all really depends on the company. Somewhere, there is a market for the exposure.”

Special Reports /

Price Questions Remain In Gulf States, But New Business Possibilities Emerge

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