Experts at a webinar expressed varying view points today as to whether the industry is nearing the end of the soft market, if not immediately than in the foreseeable future.

During part four of RIMS' “Risk Management Strategies in an Unsettled Financial Market” webinar series, Keith Walsh, equity research analyst at Citigroup, made the case that signs are pointing to a pricing upswing, which would be a positive for the insurance industry, if not necessarily for buyers.

One sign he mentioned is the upward trending of combined ratios due to looser underwriting standards. As the combined ratios move up and profitability declines, Mr. Walsh said, pricing should follow.

He also said that credit losses are destroying capital for insurers. If companies cannot make money on their investment portfolios, then they are going to have to raise pricing, he explained.

He acknowledged that a firming in pricing is anecdotal based on what he is hearing, and he noted that he is not predicting a pricing upswing in his earnings models, “but [pricing is] looking incrementally better is what I'll say.”

Stefan Holzberger, assistant vice president at A.M. Best, though, said there are other signs that would suggest a prolonged soft market cycle. Citing figures provided in the presentation by Steve Weisbart, chief economist and vice president of the Insurance Information Institute (I.I.I.), Mr. Holzberger said that premium to surplus is at historic lows for the industry.

Additionally, he noted that the industry as a whole is “very well capitalized,” even if that might be less true after companies announce third quarter and year-end results.

He also said the industry is not experiencing serious holes in reserve positions, the way it did in the late 90s and early 2000s. The jury is out regarding whether the market will harden, Mr. Holzberger said. He does not see strong indications that softening prices will plateau.

Speaking to the suffering economy in general, and how the insurance industry is positioned relative to other industries, panel moderator Sam Friedman, editor in chief of National Underwriter, said there are a number of fundamental macro economic challenges today, and he added that he is not optimistic about a quick turnaround in the economy. This, he suggested, may cause a “shrinking pie” for insurers and brokers.

Mr. Weisbart said that while times will be difficult for insurance, the industry, relatively speaking, is in a strong position.

Insurance, he said, is not an optional purchase, and buyers will need to have it even in, perhaps especially in, hard economic times. He stressed that he is not saying “profits are right around the corner,” but he said the impact of the economic troubles will be felt less by the property-casualty insurance industry, and even to some degree by the life and health industry.

Mr. Weisbart pointed to some challenges for insurers' results also, such as a catastrophe year that may be as bad as 2001 and 2004–though not as bad as 2005–and inflation. “The problem with inflation is it affects insurance in quite a number of ways; all of them bad,” he said.

A.M. Best is not in the business of predicting the direction of the economy, Mr. Holzberger said, but he said he does feel like the fundamentals of the insurance economy are still strong for the p-c sector. Insurance companies, though, will face economy-related problems, he said.

Mr. Walsh said brokers may be in better shape now than they have been in years. He noted, for example, that while poor corporate leadership has become a national issue, leadership among the major brokers has emerged stronger in the wake of the investigations launched by former New York Attorney General Eliot Spitzer. He said recent broker compensation hearings will likely result in uniformity with respect to disclosure, which will help the major brokers as well.

Mr. Friedman asked if AIG may cut its rates in an attempt to overcome a reputation that its companies are in trouble, even though the individual companies are still strong.

The company has longstanding relationships with clients and brokers, Mr. Weisbart noted, and he added that he hopes AIG leverages those relationships to keep business rather than sacrificing its underwriting standards.

Mr. Walsh said that clients with large portions of business in AIG will probably feel a need to diversify away from the company a bit regardless of whether or not rates are lowered.

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