These are unparalleled times in the insurance marketplace and the economy. The Great Recession, Chinese drywall, the Deepwater Horizon oil spill, the failure or near-failure of numerous “too big to fail” companies like AIG, high unemployment, and the housing and mortgage industry meltdowns have made even the most robust businesses wary.

The E&S segment of the insurance industry has historically been able to move independently from other financial service sectors. In the past, a downturn in the economy has led to strengthened pricing as insurers tightened their underwriting guidelines. Today, however, E&S carriers face pricing pressure due to the highly competitive environment within the E&S community itself and from the voluntary market. While the case for a market firming can be made, certain basic underlying principles are preventing that from happening.

First and most notably, the principle of supply and demand, which dictates that the price for a good or service will rest at the point that the supply of that good or service meets its demand. Given a steady supply with increased demand for a good or service, the agreeable price point also increases. Conversely, when supply increases at a rate faster than the demand, the price point drops — a simple yet powerful premise when considering risk transfer products.