National Underwriter - April 18 2011

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 full circle.”

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

Property and Casualty is partnering with Great Insurance Jobs.com! GreatInsuranceJobs.com — The 1 insurance career website for both employers and jobseekers.