Magazine editors are notorious for filling January opinion pages with predictions, and NU's editors are up to the task as well.
It turns out, however, that we don't all agree on the key question–whether the market will turn this year, with two senior editors offering opposing views.
Before focusing on that serious debate, let's ease into doom-and-gloom scenarios by first reviewing the more light-hearted predictions of our newest staffer, Assistant Editor Chad Hemenway. Chad predicts:
o The role of the Federal Insurance Office will remain a mystery wrapped in an enigma.
o After passage of the omnibus bill of the industry's dreams, the homeowners market will see a resurgence in Florida. Before the champagne is finished, someone will realize there could be something wrong with the auto no-fault system.
o A hurricane will maybe definitely strike somewhere in the United States.
o Beginning in October, people in cars will begin to hit deer more often.
o AIG Repays Government; Conquers Planet.
We'll post Chad's complete list of facetious forecasts in a blog item this month. All kidding aside, Washington Editor Arthur "David" Postal offers pessimistic predictions from his vantage point in the capital:
o Negotiations over long-term reauthorization of the National Flood Insurance Program are likely to be caught up in concerns about the high cost to voters of "market reform" and remapping, creating the need for another extension of the current program when it expires Sept. 30.
o The battle by insurers to keep federal regulators at bay will continue unabated. But the head of the FIO will be named, the office will start taking shape, and an independent insurance representative to the Systemic Risk Council will also be named in the first quarter.
o Implementation of surplus lines reforms–through an interstate compact that is acceptable to the industry–will not occur by the June deadline. This will drag on because states starved for revenue will not agree to a deal, fearing critics will charge a particular state is being shortchanged.
o The insurance market will be stable in 2011, with employment and prices unlikely to rise significantly.
Moving to a more optimistic view on the last item, I'm in the minority camp of those who foresee a market turn coming soon. Reports I have read about reserve cushions dwindling are compelling, but without time to produce a rigorous actuarial analysis of my own, I offer two alternate reasons for my forecast.
First, while experts see excess capital as a factor that will keep the market soft, history shows that too much capital comes with a temptation to put it to work in ways that don't make sense. It is likely that some insurers have made unintelligent decisions. With other forces at play–weak investment earnings and potential catastrophe losses–"the industry is teetering."
Analysts at Keefe Bruyette & Woods used the word "teetering" to describe current market pressures but went on to say a 2011 turn is unlikely.
I disagree, and offer an easy test I use as a prediction metric. I look at the results of a mainstream insurer with typical soft market coping strategies (whose identity I won't reveal) and watch for its commercial lines combined ratio to reach 105. It did for the first nine months of 2010.
Sounds arbitrary, but it worked flawlessly to help me foresee the last turn
Before closing, my bosses insist on one final forecast. NU will launch an insurance news and information mega-site this week–PropertyCasualty360.com. Stay tuned for details.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.