SCOTTSDALE, ARIZ.–Insurance executives interviewed at an industry conference here said an end to the slide in insurance rates will not come soon, and the current U.S. economic climate is exacerbating conditions.
Their comments came at the 82nd annual meeting of the American Association of Managing General Agents. In several interviews conducted by National Underwriter over the four-day event that concludes today, industry executives opined there is no quick end in sight for the soft market, and some said they believed there will not be a course change through next year and possibly the year following.
During an AAMGA executive board press conference Monday, one of the topics discussed was the state of the market and how MGAs are dealing with it.
Tom Albrecht, AAMGA president, said MGAs are working to get out in front of the soft market by finding niche businesses, and have done well with the strategy despite the competition from standard line insurers who are aiming to increase volume.
Euclid Black, incoming president of the AAMGA, said the current market is little different from previous soft cycles. The only variance he sees from the past is the advent of technology that allows for the faster flow of information and greater efficiency. For MGAs, the soft market allows for creation of new programs and experimentation that is just not available to them with the pressures of the hard market, he noted.
“[The members] are entrepreneurial and we have a lean and mean membership,” said Curtis Anderson, president-elect of the AAMGA. “We've learned to tighten our belts and still make money through a soft market. We know what to do and we saw the change coming,” he said, adding that the most important production weapon for MGAs is the relationships they have built over the years.
In an interview, Alan Jay Kaufman, chairman, president and chief executive officer of Farmington Hills, Mich.-based Burns & Wilcox Ltd., said there is no insurance sector market today in the United States that stands out as more challenging than any other at this point.
It is soft throughout the entire country primarily due to the combination of increased capitalization and the poor U.S. economy, he said. The capitalization has increased the desire among the standard carriers to capture more markets, while the poor market conditions mean there is less business to write.
An example he gave is the current construction climate where the volume of business to be written has diminished radically.
Harvey W. Goldenberg, senior vice president and branch manager for Burns & Wilcox in San Francisco, said one thing different is the rapid decline of the market in the latter part of last year.
Frank Mastowski, president of Montvale, N.J.-based Jimcor Agencies, said that while there is softness through many parts of the country, there still remain some capacity issues for coastal risks in New York, New Jersey and Massachusetts. There is capacity, but he described it as a juggling act to keep up with the demand.
He said it appears underwriting discipline among the standard carriers is “out the window.” According to Mr. Mastowski, insurers are writing risks such as inner-city housing that will soon prove a losing proposition for them.
The last three months of the year were very difficult at his firm, with business going to standard lines, but the past two months appear to be seeing some stabilization in pricing, he related.
To deal with the market changes, both wholesalers said they are turning to improving technology. Mr. Kaufman noted that Burns & Wilcox continues to make investments and that without those investments “you will be out of business.”
Both Mr. Kaufman and Mr. Mastowski characterized the current market as similar to the soft rate situation of 1990. Mr. Mastowski said he did foresee soft conditions lasting through an eight-to-ten-year cycle.
Mr. Kaufman suggested there would be no change from the soft market until 2010 at the earliest. A major catastrophe could bring a more rapid change, but without one “it will take time,” he observed.
Detlef Steiner, chairman of Delos Insurance, a program business insurer founded two years ago with private equity capital, said the primary driver of any soft market is reinsurance capacity. Once that capacity begins to reverse itself, through losses in investment income and increased claims activity, the market cycle will turn, he predicted.
Mr. Steiner said the poor performance in the equity markets to date means reinsurers cannot allow their combined ratios to rise above 110 because they do not have the investment returns to compensate for their losses.
“I do not have a crystal ball, but we have not seen the bottom of this market yet,” said Mr. Steiner. “The performance will not get better, it will get worse,” and will last at least for 18 more months, he projected.
He did say that despite the soft market, program business has a place, and with 21 programs available in his own company, he is finding clients interested in placing business–and here, he believes, business will continue to grow in a strict underwriting climate.
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