Keeping Their Powder Dry


Panelists say they’re learning to live with the prolonged soft market. Meanwhile, rates won’t rise until insureds are in a position to accept the increases.


“For a lot of the new entrants that come into the market, they’re managing their business with expense ratios upwards of 30% to 40%. That’s not sustainable.”


Matthew Power, Lexington Insurance Company


The market for surplus lines products may be soft, but organizations focused on distribution are still fi nding opportunities to grow and profi t.


“When you look at what’s going on in the market, we’re still writing a tremendous amount of insurance. Steven’s fi rm (Amwins), our fi rm (Swett & Crawford), we’re probably looking at close to $5 billion of premium on the P&C side,” Neal Abernathy said. “People are still looking to be aggressive.”


Matthew Power distinguishes between top-line and bottom- line growth. Less premium coming in does not mean the overall business must be less profi table. Power warns that some organizations’ short-term results may look good, but that other results may indicate long-term weakness.


“To really get a fl avor of where we’re headed as an industry you’ve got to dial back some of those calendar-year results and look at pure accident-year results right out of the yellow books of a lot of the major players,” Power said. “A picture starts to emerge that’s signifi cantly less rosy, in my view.”


On average, combined ratios for surplus-lines writers remain lower than the overall combined ratio for the property/casualty industry.


Those who exceed industry norms may be straying into practices such as cash-fl ow underwriting, given paltry investment returns.


Steven DeCarlo notes an infl ux of new competitors into the distribution area, but said this is an area known for it’s dynamic nature.


The bottom line: rates won’t improve until insureds are willing and able to pay the increases. That day is unlikely to come in the short term, Neal Abernathy said.


Copyright © 2010 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14