BOSTON—Just as regulation has prompted banks to move towardconsolidation, one insurance executive here at the PCI AnnualMeeting is calling for the same in his industry.

Joseph P. Brandon, a consultant with AlleghanyInsurance Holdings when it purchased Transatlantic Re for $3.4 billion in November 2011,said during a CEO Panel he predicts “secular consolidation” as theeconomy continues to slowly improve.

There will always be a place for “small to medium-sizedcompanies that are nimble,” Brandon, now executive vice presidentof Alleghany adds. Consolidation won't mean a less choices.“There's not going to be an Intergalactic Re,” joked the one-timeCEO of Berkshire Hathaway's General Re Corp. “But consolidation isgoing to continue.”

In fact, he added, many times executives prefer not to roll withthe tide of an acquisition. They prefer not to be part of a largecompany and start their own ventures.

However, Michael McGavick, CEO of XL Group wondered aloudif new regulatory burdens on insurers' capital would “requiregreater concentration,” resulting in insurance companies resemblingutility companies–very large and lack innovations.

RESERVE CRISIS OVERDUE?

Hiscox USA CEO Benjamin A. Walter wondered if recent reservetroubles from peers like Meadowbrook and Tower Group signaled atrend.

He said Tower has been called a “one-off” but added thathe's seen reports indicating industry reserving difficultiesare cyclical.

“There has been a reserving crisis about every eight years,historically, and the last one was 12 years ago so we are overdue,”Walter said.

Rating agency Standard & Poor's expects the reserve-release“cushion” to diminish more in 2013, according to a recentreport.

Credit analyst Tracy Dolin told PC360 the industry'sreserve position, on a whole, is “adequate,” especially for years2002-2008. These are the years from which most the reservereleases, to bolster profitability, have originated over the lastfew years.

But there remains some unknowns about 2009-2012 because thesereserves “are not mature and are from a soft-rate cycle,” Dolinadded. Commercial lines insurers with long-tail risk such asworkers' compensation are more susceptible to adverse reservedevelopments. Reserve releases from recent years would concern therating agency because deficiencies could follow.

Workers' comp was one of the lines contributing to Tower's $365 million strengthening of loss reserves foraccident years 2009-2011.

In comments during a third-quarter earnings call, W.R. BerkelyCorp. CEO William R. Berkley hinted more companies could be facingreserve problems, which is causing them to withdraw from certainlines of business.