Soft Market May Be Short-Lived, Says Brown
By Mark E. Ruquet
NU Online News Service, July 13, 3:14 p.m. EDT?A soft market may be on the horizon, but the chief executive of a top brokerage firm said today he believes the insurance industry will not see it last as long as the down cycle did in the 1990s.[@@]
J. Hyatt Brown, chairman and chief executive officer of Brown & Brown Inc., the Daytona Beach, Fla.-based insurance broker, said there is growing competitive pressures similar to those seen in the late 1980s as that hard market turned into the soft-market conditions of the 1990s.
Mr. Brown's comments came during his firm's conference call held today reporting second-quarter financial results in which net income increased 15 percent.
Despite the impressive financial performance among the national carriers during this hard-market cycle, Mr. Brown said their profits need to be funneled back into reserves that are "not full enough," such as workers' compensation.
"That's why I think if it (the insurance market) starts to go south more rapidly, there is going to be a curbing, a braking," he said.
During the quarter ending June 30, Brown & Brown reported net income increased $4.2 million, or 15 percent, going from $28 million, or 41 cents a share, to $32.2 million, or 46 cents a share. Revenues rose 15 percent, or $20 million, going from $138 million to $158 million.
For the six months, net income rose $10 million, or 17 percent, going from $58.5 million, or 85 cents a share, to $68.5 million, or 99 cents a share. Revenues rose 15 percent, or $41 million, going from $283 million to $324 million.
Mr. Brown noted the firm sees some decreases in regional growth as premium rates continue to decline or moderate for different lines throughout the country. He said the Florida retail business is seeing declines as property premium rates have gone down 25-to-50 percent.
"Workers' comp is flat and general lines are trending down," he said. "We are writing new accounts at 15 percent less than expiring. We are back in the heat again."
However, the contractors market in Florida is shrinking, which he attributed to conditions in California now spreading east.
"Florida is going to continue to do well, but there is going to be a lot of pressure on pricing," he remarked.
Nationally, the firm's business is trending up, as Brown & Brown continues to pick up new business and an improving economy is leading to a pick-up in the employee benefits business, nationally and in its Western retail, Mr. Brown said.
Rate erosion is not "as aggressive" in the West as it is in Florida, "but it is there," he added.
Mr. Brown said that the only flat or upward trending line is the casualty business in the New York City area. The firm has also seen two quarters of growth in its dental program after eight years of decline.
Mr. Brown said the firm continues to forecast internal growth of zero-to-five percent for the year.
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