For large-property risks, excess and surplus lines insurers can probably expect to make a bit less money this year compared to last, as competition heats up and carriers begin to seek more volume at the expense of pricing, brokers predict.
Bill McCord, vice president of marketing and underwriting for Burlington, N.C.-based Tapco Underwriters, said a number of issues led to significant changes in the large-property market just over a year ago.
Prices are dropping dramatically, down by 15-to-20 percent compared with 2006, he pointed out. A broker in Houston he spoke to recently said he bound seven accounts in July. A year ago, during the same month, that broker bound twice as many.
“Prices peaked a year ago,” Mr. McCord said.
Hurricanes Katrina and Rita in 2005 not only managed to bring on a hard property market but also changed the way modelers looked at risk, he added. The new realities led to several changes, including alterations in the models used to evaluate a carrier’s overall exposure and pricing strategy, he said, while reinsurers also pulled back their capacity, squeezing the market.
The combination of these factors produced a situation in which prices skyrocketed to a point that “never may be that high again,” according to Mr. McCord.
Price softening, while welcome news for buyers, he continued, “is not good news for the excess and surplus market” because of the double-whammy of increased competition and fewer submissions.
That doesn’t mean there are not opportunities out there for the E&S market, as specialty and nonadmitted carriers can still step in where other insurers may fear to go–not only for coastal properties, including energy exposures, but for start-up properties with little or no loss history, he observed.
Where pricing will go in the future is ultimately beholden to the whims of the weather. Tom Cesare, executive vice president in American Wholesale Group’s New York office, said another hurricane season like 2005 would probably make any purchase of insurance in the voluntary market impossible.
But where the market as a whole will go remains a question. “How low is low? Only the marketplace can determine,” noted Ed Magliaro, executive vice president and national property practice leader for Atlanta-based Swett & Crawford.
As for what agents should be doing in this softening market, Mr. Cesare advised that they “be honest with the insured and tell them what is going on. Don’t shoot for the stars. Don’t say you’re going to get a 50 percent reduction when it will be 10. Clients need professionalism and comfort.”