 |
 |
 |
|
Here we go again Specialty market softens By Phil Zinkewicz Each year, before Groundhog Day, the Insurance Information Institute invites a panel of Wall Street stock analysts and industry professionals to come forward (as does Punxsutawney Phil in a brief search for his shadow) and forecast the outlook for the industry. This year’s survey results indicate that the respite in catastrophe losses in 2006, combined with a strong performance in virtually all other major lines of property and casualty insurance, will, in all likelihood, propel the industry to its best underwriting performance since 1936. Analysts further expect the industry’s profitability to continue in 2007, according to the I.I.I. survey. However, the industry’s underwriting performance in 2007 will be much more moderate, according to analysts, and the decrease in underwriting profits is expected to continue in 2008. The poll also shows that analysts uniformly expect premium growth to become even more sluggish in 2007 and 2008. This apparent paradox—a peak in industry profits, but stalling premium growth—is a “clear reminder” of the cyclical nature of the property and casualty insurance business, and the fact that the industry’s financial fortunes are influenced by a number of factors, says the I.I.I. The average forecast calls for an increase in net written premiums of just 1.8% in 2007, a substantial slowdown from the 3.3% estimated for 2006. The 1.8% increase in premium growth that analysts forecast for 2007 would be the third slowest rate of growth for P-C insurers since 1998, during the depths of the last soft market. It represents a near halving of the estimated figure for 2006. The projected deceleration in premium growth in 2007 is a direct result of an across-the-board softening in the personal and commercial lines pricing environment; the sole major exception to this general trend is hurricane-exposed coastal property insurance coverages, where insurers are looking to charge premiums that are commensurate with the substantial risks they assume. For 2008, the average forecast calls for an equally modest increase in net written premiums at just 1.9%, says the I.I.I. survey. Rough Notes wondered whether the I.I.I.’s overall forecast for the property and casualty industry reflects current trends in the specialty lines arena, so we spoke with Bill Newton of Lemac & Associates and current president of NAPSLO, a trade association representing the surplus lines industry. “There is no question that the specialty market is softening,” said Newton. “Primary general liability rates are down 10% to 15%. The professional liability market is soft, with some rate reductions as much as 25%. There are some slight decreases in directors and officers liability, although overall the market is stable. In California, residential contractors have been difficult to place over the last five years, although we are seeing more carriers coming back into the business.” Newton said that, typical of the industry, the years of profits have caused more carriers to go out chasing after fewer dollars. “I really don’t think we in the industry have learned anything from past cycles. I remember in the late 1980s, when we were coming out of the hard market of 1984-85, when people were predicting that the soft market would not last a year. They all drew a line in the sand. We know what happened. The soft market persisted for more than a decade and began to harden only slightly at the turn of century.” Asked whether new capital coming into the insurance business from the investment community will have an effect on the softening market, Newton said it will. “New capital always affects insurance market cycles,” he said. “Initially, this new capital was intended to address the property catastrophe market but as time passes, the new capital will be looking at other areas of insurance as well.” Newton also discussed possible upcoming legislation in Congress that he said is vital to the surplus lines industry. He said that NAPSLO is contacting members of House Financial Services Committee and Senate Committee on Banking, Housing and Urban Affairs to urge Congress to enact the surplus lines and reinsurance reform bill introduced in the last Congress. The bill was passed 417-0 last September by the House, but it died in the Senate for lack of action. In an open letter to members of both committees, NAPSLO Executive Director Richard Bouhan said NAPSLO’s “top legislative priority” in this Congress is the enactment of the “Nonadmitted and Reinsurance Reform Act of 2006, and that NAPSLO stands ready to do whatever is necessary to pass that legislation again in the House and, hopefully, in the Senate as well. “Over the last two months, NAPSLO representatives have met with top staff for House Financial Services Committee Chairman Barney Frank (D-Mass.), Ranking Member Rep. Spencer Bachus (R-Ala.), Insurance and Government Sponsored Enterprises Chairman Paul Kanjorski (D-Penn.) and most Democratic and Republican members of the subcommittee to urge the bill’s reintroduction and passage,” said Newton. “We hope to see a version of the bill reintroduced in February,” Newton said at press time. “The bill is a very good piece of insurance legislation and would increase consumer access to the surplus lines market and assist in expanding insurance availability nationwide.” If reintroduced and passed, the bill would improve and streamline the regulation of surplus lines insurance and reinsurance, according to Newton. “The purpose of the bill would be to simplify the regulation of the excess and surplus lines industry and assist consumers, particularly in the storm-ravaged sections of the nation, by making property and casualty insurance coverage more plentiful. Among the bill’s provisions are the creation of a uniform system of premium tax allocation and remittance, one-state compliance on multi-state surplus lines risks, and direct access to the surplus lines market for sophisticated purchasers.” Continued Newton: “I cannot stress enough how important these changes are to the excess and surplus lines industry. We, at NAPSLO, believe that enactment of this legislation will significantly increase the level of efficiency for those using the surplus lines market, particularly when coverage is located in multiple jurisdictions. It will help everyone involved in the surplus lines market from the companies down to the consumers.” * |
|
||||||||||||||||||
| |||||||||||||||||||
