The Elusive Market Turn

As we start the new year, the elusive market turn is on the minds of all insurance professionals.  The 2009 combination of a tough economy and an intensely competitive insurance market was not kind to most insurance organizations, and 2010 is not showing any signs of change.  So when will a change come?

One underwriter commented in late 2008 that the change would occur on 1/1/09 because prices were too low.  Obviously wrong.

William R. Berkley, chairman and chief executive officer of WR Berkley Corp., sees a turn in the first half of 2010 (see here, here or here, from late 2009):

At current pricing levels with existing low interest rates, we believe the industry is operating at a net loss on an accident year basis; and a turn in the cycle is inevitable. We anticipate modest improvement in the economy and a turn in the insurance pricing environment in the first half of next year.

Maybe the insurance market is not that different from many other markets, and is driven by supply and demand.  Supply is measured by the industry’s capacity to retain risk, traditionally measured by surplus.  This alternative perspective is provided by David Bell, chief operating officer, Allied World (see here).

Insurance can be complex, but what drives the overall market is not. It’s supply and demand. It’s capacity available versus capacity in demand. What the market seems to need isn’t more capacity, but smarter capacity.

This doesn’t answer the question of when a turn will occur, but at least it provides some insight into what to watch for – reduced capacity.  Capacity reductions will occur if insurer losses impact surplus levels, and pricing will change if the capacity reduction is significant enough.

Brought to you by Tennant Risk Services.

 

Comments

[affordable dental insurance]

i am in the market of dental insurance and i have to say that over the past few years the market for dental insurance has crashed. i believe though that the market will come back just as it always has in history.

[Insured]

@John Doe

The problem with the whole economy is optimism. If we were all pessimistic, chances are the economy wouldn't have gone belly up.

[Insurance]

How do you think the health reform would affect the insurance industry?

[Business Insurance]

I would agree that 2010 has to be a better year than 2009. The first few months have been good for us so far but still not near 2007 levels. Fingers crossed.

[Jay D'Aprile]

We have been waiting for a turn in the market now for a while. Beyond regaining pricing power it is the unemployed insurance executives who are hoping for a market turn sooner than later. I wrote about how the hard and soft market cycle impact hiring http://tinyurl.com/y8h2noz

Hopefully 2010 is better than 2009!

[Eric]

My call: Moderately better, enough so to call it better, but not enough to call it a consistent recovery. Could be more dips down the road.

[Car Insurance]

I would be confident that 2010 will bring slightly better results than 2009 did. Nobody wants to predict positive figures in case they get it wrong but countries are starting to pull out the reccesion. With growth returning or as Berkley puts it "modest improvement" in economies. 2010 should be a year of growth for the insurance sector.

[Insurance Agent Forum]

Just be optimistic. I know this year is better than what happened to the economy last year.

[Jon Doe]

AWAC - D&O - $250M IPO - BioTech Company - 2 Phase III trials w/ results coming in the next year - Primary $5M Limit - $117K - Smart Capacity? No.