If you were an insurance buyer in 2007, you enjoyed the benefits of a rapidly softening market for all but catastrophe-prone exposures, with no turnaround in sight, given the high profits and deep pockets reported by the industry nationwide. As a price-cutting mentality reverberates throughout the property-casualty business, the widening and deepening soft market for almost all lines makes this the top news development of the year.

If you own a home or business along the Gulf Coast (where the risk of a massive hurricane scares away carriers) or in California (where the threat of earthquakes and wildfires haunts property insurers), you probably cannot count on premiums to plummetbut just about everywhere else, policyholders are in the drivers seat.

As a result, agents and brokers must scramble to defend accounts against poachers trying to lure buyers with lower prices, higher limits and broader coverage, while pressing for new business to make up for falling commissions on renewals.

At the same time, underwriters are under the gun to maintain market share without following their fellow lemmings off the cliff, as was the norm in soft markets past.

The latest barometer survey by MarketScout showed prices in November down an average of 15 percent, with deeper cuts reported for general liability (18 percent), directors and officers coverage (17 percent). and employment practices liability (16 percent).

As a result, the industry wont break double-digits again for quite some time when it comes to return on equity, according to Robert P. Hartwig, president of the Insurance Information Institute.

Meanwhile, insurers cannot count on investment returns to cushion falling premium volume, as interest rate cuts and a volatile stock market make gains on Wall Street as unreliable as on Main Street.

On a positive note, the industry is expected to remain profitable at least through next year. Mr. Hartwig believes the combined ratio will be about 93.5 for 2007 and stay below the magic 100 mark next yearwhich would make 2008 the third-straight year that insurers as a whole operated in the black.

How long the industry can sustain profitability is another question, with a turn in the market perhaps years away.

Unless there is a gargantuan catastrophe or series of catastrophes, the soft market is going to continue to go on its path for quite awhile to come, until the losses start to eat into surplus, said David Bradford, author of an Advisen Ltd. reportThe Soft Market: How Low Can It Go?

As reported by Caroline McDonald, Mr. Bradford told National Underwriter that capacity just keeps growing, and thus the pressure will continue on rates, and there is really no end in sight.

As usual, most insurers are chanting the mantra about maintaining underwriting discipline as competition becomes overheated, with solemn vows to walk away from underpriced business.

There is even hard evidence that some are not just talking the talk, but are actually walking the walk, with carriers in Bermuda buying back stock to return funds to shareholders, rather than flooding the market with excess capital that might drive prices down even further and faster.

But how long will underwriters hold the line? Advisens Mr. Bradfordwho was an underwriter and underwriting manager for 20 yearsis not optimistic. Its just the nature of the beast.

Everybody talks about underwriting discipline, and eventually almost everybody crumbles, he said. Its really economic forces. At the end of the day, the power of supply and demand is a pretty strong influence.

He explained that underwriting discipline works only if everybody is disciplined, but the reality is pricing insurance and reinsurance is much more an art than it is a science, so somebody is always going to believe they can write a piece of business profitably, for less money. Theres always going to be that competition.

Bottom line, he added, at some point in time, any company thats trying to maintain discipline will come to a difficult decision [when] they start to lose their core business.

Will insurers resist the temptation, or will they allow irrational exuberance to take over? As the cliff beckons, the industrys history doesnt offer much hope that sound underwriting judgment will prevail for long.

What do you folks think???

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