What Did The Top Execs Say?

Did you ever wish you could be a fly on the wall at a meeting of major insurance company CEOs? If so, this is your lucky day. Read on for some of the most provocative and insightful comments delivered at the recent Property-Casualty Executive Conference, sponsored by the National Underwriter Company.

For example, the opening CEO panel had much to say about the proposal by New York Insurance Superintendent Eric Dinallo to require property insurers to set aside catastrophe reserves, regardless of the federal tax implications.

Edmund Kelly, chairman, president and CEO, Liberty Mutual Group:

o "I'm not sure the New York proposal in all its details is the right answer, but it is the right direction...Having big profits in non-cat years is still a big political problem...The politicians have it right here."

o "Unless this industry is willing to report losses in a bad year, you're going to lose the catastrophe business to the government. It's not socially acceptable to buy reinsurance to protect earnings, which is what public companies are doing--looking to protect their stock price."

o "It is socially inappropriate to dividend away the excess capital that could be used to cushion against a future catastrophe."

Joe Brandon, chairman and CEO, General Re:

o "If we concede we can't help society solve its big problems--like catastrophes--we lose our relevance."

However, about the New York proposal in particular, Mr. Brandon added:

o "This [proposed cat reserve] only works if you make it tax-deductible. And in any case, it's not the solution. If the politicians think they've solved the problem by letting us make a journal entry, that won't get it done. We need to end rate suppression so that people pay for the risks they incur."

Steve Lilienthal, chairman and CEO, CNA Financial Corp.:

o "It would be insane to handle cat reserving on a state-by-state regulatory basis. The concept is good, but what's needed is national legislation."

Like Mr. Brandon, he added that:

o "If you don't have the right rate, the point is moot anyway."

A group of mega-brokers on a panel about innovation in the industry had complaints, rather than solutions when asked how their firms intended to replace the billions in contingency income surrendered as a result of deals struck to settle big-rigging charges.

Donald Bailey, CEO, Willis North America:

o "The playing field is ridiculously unlevel. Four people gave up contingency fees, while thousands of brokers did not."

o "New supplemental commissions may just be contingency fees in drag."

o "Transparency is a given--clients should know what brokers make on their accounts. But it is impossible to have an intelligent conversation about this" while a handful of major brokers are prohibited from taking contingency fees but the vast majority can do so and keep that fact from the buying public, he said.

o "It's obviously a high point of frustration for us."

Ted Devine, CEO of Aon Re Global:

o "On the retail side, it's a bit absurd and even surreal. Contingencies have not gone away, except for three or four firms."

o "There will be a lot of innovative thought on remuneration," with future brokerage fees perhaps following the "transaction-based capital markets model."

Norman Brown, managing director and head of product development, Marsh:

o "When we're in a bake-off with a broker who does not have to disclose their compensation plans, it is fundamentally unfair. We need to level the playing field."

Among the more general conference highlight quotes:

Vincent Dowling, managing partner, Dowling & Partners Securities:

o "Pricing is worse than what companies are saying on their conference calls but not as bad as agents are saying in their surveys."

o "With the dollar where it's at, the property-casualty side of the business is looking very attractive-slash-vulnerable for European firms shopping for expansion here."

o "Florida decided to play Russian roulette with Mother Nature [by setting up a catastrophe reinsurance system]."

Edmund Kelly, Liberty Mutual:

o "This industry is wonderful at running with good news and discounting bad news."

o "Many public p-c companies are glorified bond funds, living off their portfolios. They are overreserved and overcapitalized, and for a European buyer, this could finance one-third or more of an acquisition."

o "Guaranty funds are the ultimate moral hazard for this industry. I would do away with them."

o "This industry has essentially been giving away homeowners insurance for 30 years to get that good auto business."

Joe Brandon, General Re:

o "When you do the math, it doesn't take many 5 percent rate declines and 3 percent claims severity increases to turn very good years into very bad years for insurers."

o "The quality of information at the disposal of senior managers is much higher than ever, but the fundamental question is whether the decision-making skills will be equally high quality."

Steve Lilienthal, CNA:

o "A lot of people are saying we will not go this way again. They insist they will hold the line on responsible pricing. That tends not to hold up in the second or third year of a soft market."

o "The challenge will be how heroic we are when the pressure is really on [to cut rates]."

Donald Bailey, Willis:

o "When it comes to innovation, senior management must set the tone. You have to wake up every morning with the conviction that your product or service could be made obsolete and then sell the rest of your organization on that."

o "When it comes to training, we've been cheap and lazy as an industry. It will hurt us down the road. All we have is our people, yet we don't invest enough in their technical education."

Ted Devine, Aon Re:

o "You have to be able to smell when growth is running ahead of acceptable risk and away from compliance."