Fundamentally Fox
Atlanta
The beautiful part of the market turn, says Lloyd Fox, is that it heralds a long-delayed return to the insurance business fundamentals he so deeply values.
Mr. Fox sticks to the fundamentals, even when they're out of fashion. He thinks the excesses of the prolonged soft market prove him, and those who think like him, right.
Which seems a staid philosophy for a pioneering alternative marketeer. His company, Atlanta-based American Safety Holdings Corp. (with connections to a Bermuda-based parent), is a child of the last hard market and began life as a single-product company, writing asbestos abatement liability coverage when no one else would.
Lloyd Fox is now president and chief executive officer of American Safety, which has since grown into a multiline, multi-company group still very much in the specialty market.
"The alternative market is where we grew up and that's where we still like to position ourselves," he says.
Mr. Fox thinks the recent market turn is a strong indicator that "companies are recognizing that financial strength and operating results are most important and that premium for premium's sake is not the way to go."
Take the reinsurance market, which over the past seven or eight years has been marked by an extreme softness.
"It's amazing to me," he says laughingly, "that everyone seems to have awakened at the same time."
The reinsurance market has turned–rather dramatically turned, he says. "They tried to hold market share rather than make money. Whether individually or collectively, everyone woke up and realized we can't do this anymore. We've seen a real jump shift in that marketplace in the past year," he notes.
"Reinsurance has always been an important issue and it's even more important these days," he says.
Of course, some might not see that as a bright spot. With companies cutting lines of coverage, there are programs that won't get written and smaller companies might not be able to get reinsurance. But there's another side to that.
"The marketplace as it has been over the past several years has been somewhat artificial, fueled not by underwriting rationale but rather by a quest for premium and market share," he says.
Mr. Fox complains that a whole lot of programs put together over the past several years should never have been underwritten. "In fact, they weren't underwritten," he says. "They were just written, as soft market programs."
He says it's unfortunate when insureds have to rely on programs devoid of sound financial structure and it's a bright spot when people start running their businesses appropriately.
People and businesses just have to understand that they have to pay a fair price for effective risk transfer if they want the company writing the coverage to be around to pay their claims.
"If all that happens as a result of the turn in the market, I think that's a bright spot," he says.
Another bright spot born of profligacy is that the quality of carriers will rise in the wake of the problems some insurers have had with increased scrutiny by rating agencies and state insurance departments.
"Instead of having companies that have business plans that will put them out of business in five to 10 years, you'll have companies that are properly reserved, that watch claims and cash flow, that adopt sound underwriting and financial methodology," says Mr. Fox. "They will emerge as stronger companies and we will not have turmoil in the marketplace."
Additionally, he says, because of staggering losses and adverse results suffered by a number of companies, prices are increasing. "If you pay a realistic price for something, you get realistic value," he says.
Increased scrutiny by the rating agencies, he maintains, will result in more secure companies because you have to attend to detail to preserve ratings.
"With more rate adequacy coming along, that's going to be good for the insurance companies, good for the brokerage community, good for the insurance industry," he says.
"Change is difficult but it will bolster the long-term strength of the marketplace," he adds.
It's just a matter of fundamentals.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.