cycles—“naïve capital”—is absent in this
one, says Crump's Carter. But there is still
too much capital and aggressive competi-
tion. Even though there are more people
with expertise in the business today, insur-
ers are “actually forced—probably against
their better judgment—to drive premium
[volume] into their operations to satisfy
commitments [to investors].”
The competitive dynamic is different,
but “the end result is exactly the same [as
during the last turn]—too many dollars
chasing too few accounts,” says Carter.
That means carrier exits “will have
to happen” when losses emerge on underpriced business. “Eventually they’re
either going to pull the plug or shut their
doors because they’re upside down with
respect to results,” he says. “We’re seeing
too much irrational behavior from certain
markets. And it’s classic. It always comes
RETRENCHMENT VS. RETREAT
Are some carriers already starting to exit?
“I do see it. It’s happened to me already
this year,” says Gill & Roeser's Burger, who
described carrier moves as “retrenchments”
rather than wholesale exits.
Only RenaissanceRe has completely exited, announcing the sale of its program business operations to QBE in November 2010.
But Burger says insurers are moving
off unprofitable programs quickly. Before,
they might have given a program manager
a year to fix things. Then it was two quarters. Now, they’re withdrawing in 90 days.
“They’re raising the bar regarding information and return requirements, and that’s
starting to be more ubiquitous,” he says.
In contrast, Kimmel of Guy Carpenter
says carriers are “hungry for the business”
even though they recognize that underwriting profits are disappearing. Two years ago,
only 8 percent of program carriers pegged the
program market combined ratio above 100.
This year 30 percent put it there, he says.
Kimmel also reports, however, that as
loss ratios climb, carriers are working the
expense side of the combined ratio. They
expect PAs to take on more responsibilities
than in the past—for policy issuance, loss
control, premium audit, claims—and to do
so for the same commissions, he says. NU
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