“[Insurers] are certainly looking closer at their underwriting systems because their margins are being squeezed tight. They are looking for ways to increase those margins because they don't anticipate any rate relief coming soon.
There are multiple reasons why we're stuck in this soft market. The most obvious reason is there is too much capacity in the industry. There are too many players and competition is driving prices.
What's motivating [spending for underwriting systems] is a preparation for the hardening of the market. With the consolidation that's going on in the industry there are a lot of legacy systems—multiple systems—that make up a carrier's underwriting platform, so this is an attempt to consolidate and streamline these different systems [insurers] have taken on in mergers and acquisitions. We see that as the main driver of the investment going on in the underwriting space.
There's over-capacity, yet the underwriting margins aren't where they were three or four years ago. Investment income results have not been where they were historically. There are a lot of signs where the market has turned in terms of how thin margins can get and how low cash flow can go, but I think what is holding back any turn is the amount of capital that is sitting there, particularly in the P&C industry. [Capital] has to be less available for there to be any market change in pricing.
We think premiums will increase this year. Not so much as a result of stronger rates, but because of the general economic activity that spurs premiums. We don't see premiums coming back in 2011, but we certainly see an uptick in economic activity so we think that's what's driving what little increase in premium we're going to see.”
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