Twenty-three years ago in the midst of a soft market trough, Istood in an assemblage of underwriters, actuaries, and claimemployees listening to a CEO state that he could have paid theunderwriting sector to stay home and play golf for the entire yearand made more money than having them write the kind of businessthey had placed on the company's books. The messages at that timewas clear: Manage the front door. Understand what the exposure.Does it meet the organization's underwriting standards? Is itpriced appropriately? In other words, underwrite the risk beforebinding coverage. When this is performed in a consistent anddisciplined manner over time, value is created.

Today, billions of dollars have been invested in a now widelyrecognized unknown and significantly misunderstood investmentproduct called mortgage-backed securities. Once the upfront feeswere collected from the original mortgage transaction involving alot of unqualified borrowers, no one really cared about thedownstream implications of whether or not the borrower couldactually pay back the loan. Think of it in terms of self-adverseselection. The difference over time being not that someone wasn'tmanaging the front door, but that they intentionally left it open.The devastation to date has been immediate, like the aftermath ofSherman's march through Georgia. Financial markets in near ruin,banks failing, exponential mortgage defaults and foreclosures, andyet we have no soundings indicating how deep the problem goes.

Initial indicators of what property and casualty insurers facein the near term have begun to emerge -- and they aren'tencouraging. In the midst of sheer survival, buyers are moreconcerned with keeping their jobs, feeding their families, and forthose fortunate to still have one, paying the mortgage. With fewerdollars to go around, insurance becomes a second, third, orfourth-tier consideration for many consumers. The result, as we arealready seeing in the rise of uninsured motorists, is a precipitousdrop in premium dollars that, taken in combination with portfolioerosion and increasing loss and expense pressure, forge the perfectvalue destruction storm.