Soft Market Could Last Another Year Or Two

"Underwriting discipline has not gone out the window. It still remains," he said, noting that the intensity of competition is focused on "benign risks" and markets where insurance is limited and carriers believe there is opportunity.

"They are all looking to getting businesses that they are not in today," said Eric Anderson, CEO of U.S. Retail for Aon Risk Solutions.

"The competition is not showing any sign of slowing down," observed David L. Eslick, president and chief executive officer of Marsh & McLennan Agencies.

"It will definitely remain soft through next year," said H. Wade Reece, chairman and CEO of BB&T Insurance Services Inc. The trend, he added, points to some stabilization that the market is seeing now.

The feeling is that only an extraordinary event could have enough impact to turn the market around, said brokers. Depending upon who was asked, the loss estimate for such an event ran from a low of $60 billion to as high as $120 billion before market-turning impact would be felt.

"Without a big loss, I can't see it changing," said Alastair Swift, chief placement officer for Willis North America Inc.

"People do not understand what number is truly needed to dislodge the market," said Carl Beardmore, group CEO for BMS Group based in London.

One reason for the continued soft market is the availability of capital. There continues to be much of it out there ready to be deployed, observers said, and that, in part, is fueling the competition and keeping markets depressed.

Swift said a lot of capacity came into the marketplace with the expectation that some insurers such as American International Group and Excel Insurance Services "would go by the wayside" and that would open up some opportunities. When that failed to happen, insurers were forced to find other places to deploy their capital. The result is the current market condition.

Much of that deployment is going into niche business, brokers noted.

"Everyone is specializing more and more; we are seeing more of that, and we are building around that," said Mula. "Clients want specialization and that produces better underwriting results. We believe that is a win-win all the way around."

There is some question, however, about how long insurers can continue to keep pricing down.

"Overall, the insurers are in their cheating phase," remarked Swift. "If you look at a lot of underwriters' results, they are not that great, but they are not being helped by the economy."

He noted some changes in market conditions are taking place in isolated areas, such as California's workers' compensation market, for instance, but that just seems to be fueling competition once it happens.

Reece said the recession has played a role in keeping a hard market at bay. The dramatic changes in the U.S. economic system, from a manufacturing- and agriculture-based economy to a service economy, may translate into fewer losses for insurers. That, in turn, could mean less impact on underwriters.

"The future may be more [individual] industry-based market changes," he suggested.

Robert Childs, chief underwriting officer, chairman of Hiscox U.S.A., an insurance and reinsurance company based in Bermuda, theorized that some insurers in the business are counting on investment income to continue to drive their earnings while ignoring their combined ratio results. It is a bet that his company is not willing to make, he noted.

"It is like driving the car with half of the dashboard blacked out," he remarked.

Brokers, however, are preparing to deal with the current soft market situation for a long time to come.

"You can't build your business around a hard market; you have to build it around the market you have," said Swift.