The chief executive of Aspen Insurance Holdings cautioned against trumpeting the end of the soft market during an earnings conference call this morning, also reporting a quarterly net loss figure of $116.7 million for Aspen.
Aspen's net loss for the quarter, amounting to $1.02 per share, was largely attributable to $155 million in net losses from Hurricanes Ike and Gustav, and negative performance on an investment in a fund of hedge funds.
In third-quarter 2007, Aspen reported nearly the same magnitude of income on its bottom line–$117.2 million, or $1.12 per share.
Commenting on the market, Aspen CEO Chris O'Kane, who said he has worked through five soft markets and four corrections, said, "I believe it is possible for the first time to be hopeful about a general upturn in market fortunes."
He cautioned, however, that "to be hopeful is not the same as to be completely persuaded," going on to list four preconditions for a market correction and stating that only one or two have "even been partly met" so far.
Mr. O'Kane's remarks followed comments by ACE CEO Evan Greenberg who said yesterday that "the end of the soft market has arrived," and by AXIS CEO John Charman, a day earlier, who said that a hard market in 2009 is "a near certainty."
Mr. Greenberg and Mr. Charman's remarks also run counter to opinions expressed by brokers and rating services on hand this week for the Property Casualty Insurers Association of America (PCI) annual conference in Scottsdale, Ariz.
The conditions for a market turn, Mr. O'Kane said, are: several years of low premiums and high losses; some company failures; a cataclysmic event; a widespread willingness of insurance company managers "to put up prices even if it results in a loss of business."
While he does believe that significant prices increases will "ultimately" arrive, since a lack of investment income warrants greater attention to higher premium levels at most companies, Mr. O'Kane said the actions of one troubled carrier are delaying industrywide movement.
"At this stage, we are paradoxically going through the reverse, with significant rate reductions being offered by a distressed competitor to counter the threat of lost business," he said. (Mr. Greenberg and Mr. Charman identified the distressed carrier as American International Group, although Mr. O'Kane did not.)
In addition, Mr. O'Kane noted that the industry probably has "a year's worth of over-reserving" left, suggesting that it's easier to take down reserves to boost returns than to push up prices initially.
With reserve cushions still available, "things haven't been that bad so far for most people," he said.
"So maybe we see the beginnings of a turn [at] this year end [that] strengthens over the next year or so, with a hard market coming in 2010," he predicted.
Also raising the possibility that the crisis in investment markets lets up, simultaneously easing pressure on underwriting, Mr. O'Kane concluded, "There are reasons to be cautious and there are reasons to be optimistic."
"Things are definitely looking up from where they were, but I think it might be a little bit early to sound the trumpet and say the hard market is with us," he said.
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