Keeping Their Powder Dry
Panelists say they&#x2019;re learning to live with the prolonged soft market. Meanwhile, rates won&#x2019;t rise until insureds are in a position to accept the increases.
&#x201C;For a lot of the new entrants that come into the market, they&#x2019;re managing their business with expense ratios upwards of 30% to 40%. That&#x2019;s not sustainable.&#x201D;
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.
&#x201C;When you look at what&#x2019;s going on in the market, we&#x2019;re still writing a tremendous amount of insurance. Steven&#x2019;s fi rm (Amwins), our fi rm (Swett & Crawford), we&#x2019;re probably looking at close to $5 billion of premium on the P&C side,&#x201D; Neal Abernathy said. &#x201C;People are still looking to be aggressive.&#x201D;
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&#x2019; short-term results may look good, but that other results may indicate long-term weakness.
&#x201C;To really get a fl avor of where we&#x2019;re headed as an industry you&#x2019;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,&#x201D; Power said. &#x201C;A picture starts to emerge that&#x2019;s signifi cantly less rosy, in my view.&#x201D;
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&#x2019;s dynamic nature.
The bottom line: rates won&#x2019;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 &#xA9; 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.
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