Insurers Without Focus Risk Repeating History

Mr. Iordanou said the industry as a whole will have to see premium volume rise to $500 billion and reserves go to $550 billion before pricing begins to moderate. Currently, he said, the figures for the industry stand at $320 billion in premium volume and $370 billion in reserve.

The extended soft market and dependence on investments, Mr. Iordanou said, have left insurers inadequately capitalized. He said it was "not appropriate" for insurance executives to take extreme investment risks and that those who do cannot expect to continue passing on the cost of this practice to clients.

The insurance industry, Mr. Iordanou said, is about accepting risk and pricing it appropriately.

He would not speculate on how long the current hard market would last, but felt that the industry needed to work at finding ways to make the pricing cycles less volatile for clients.

While not predicting what the outcome will be for some companies, Mr. Iordanou said the industry could look at the last pricing cycle as a predictor of what might happen to some.

During the hard market of 1984 to 1987, he said, 10 of the top 20 companies either were acquired or ceased operation. American International Group, he said, which was number 14 at the time, became number one.

Companies are governed by the fear of being ruined, Mr. Iordanou said, and if the companies do not return to making a profit from underwriting, they could risk repeating the history of the last hard market.