A.M. Best Co.'s Review/Preview: Hard Market Widens the Gap Between Strong, Weak.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 28, 2003 As the dust clears on the soft-market battlefield of the property/casualty insurance industry, the victors are emerging triumphant, with sustained, robust price increases, better terms and conditions, and dramatically improving results, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. A.M. Best Co.'s annual Review/Preview report. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , those that abandoned underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. discipline in favor of pursuing market share are left with wounded balance sheets and a need to shed noncore business segments and re-establish underwriting culture at a time when insureds are fleeing to quality, long-term market players. Today's hard-market conditions will favor the strong and temporarily prop up marginal players that rise with the tide. At the same time, insolvencies are peaking, as the same market and economic conditions that fueled the market turn have caused the weakest players to fail. Many factors suggest that the first hard market since the Reagan administration Noun 1. Reagan administration - the executive under President Reagan executive - persons who administer the law will last for several years. Yet counterinfluences are likely to ensure that, as usual, the peak will be of much shorter duration than the ensuing en·sue intr.v. en·sued, en·su·ing, en·sues 1. To follow as a consequence or result. See Synonyms at follow. 2. To take place subsequently. valley. Consequently, insurers that embrace an underwriting and pricing culture that ensures consistent underwriting-year profitability, and that maintain their adherence to sound operating fundamentals when the inevitable soft market returns, will remain the strongest and most stable in the world property/casualty market. While the significant losses arising from Sept. 11, 2001, accelerated the long-awaited hard market, many other financial and economic factors indicate that it could last at least through 2004. Underpricing Underpricing Issuing securities at less than their market value. underpricing The pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale. during the soft market caused a significant shortage in carried loss reserves by the end of 2000. This, combined with catastrophe losses; accelerating trends in the emergence of asbestos and environmental liabilities; challenging regulatory environments, most noticeably for personal auto and medical-malpractice writers; medical cost inflation; and staggering jury awards, has weakened the balance sheets of many insurers. These industry-specific problems have been compounded by the losses related to Sept. 11 and the dramatic stock-market decline brought about by the meltdown meltdown Occurrence in which a huge amount of thermal energy and radiation is released as a result of an uncontrolled chain reaction in a nuclear power reactor. The chain reaction that occurs in the reactor's core must be carefully regulated by control rods, which absorb in corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. , all leading to a considerable decline in capital. As a result, the competitive environment changed significantly in the past two years as these factors, combined with a shift in risk appetite caused by terrorism exposures and general malaise malaise /mal·aise/ (mal-az´) a vague feeling of discomfort. mal·aise n. A vague feeling of bodily discomfort, as at the beginning of an illness. in the capital markets, created capacity shortages in many sectors today. While other industry observers suggest that the hard market will last through 2005 and possibly beyond, or that this will be the longest hard market in recent history, certain counterinfluences could begin to pressure pricing gains earlier than many expect. While the rate of escalation es·ca·late v. es·ca·lat·ed, es·ca·lat·ing, es·ca·lates v.tr. To increase, enlarge, or intensify: escalated the hostilities in the Persian Gulf. v.intr. in price increases is beginning to slow, it will certainly be some time before the rate of pricing gains decelerates, and even longer before prices begin to decline again. Nevertheless, new capital, potential changes in equity markets, interest-rate increases, or new forms of financial reinsurance Financial Reinsurance, also known as 'fin re', is a form of reinsurance which is focused more on capital management than on risk transfer. In the non-life segment of the insurance industry this class of transactions is often referred to as finite reinsurance. could slow the pricing train as insurers revert to a dependence on favorable nonunderwriting conditions to support growth in earnings and surplus. In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified" meantime, meanwhile , this is not the time to relax. While strong insurers are enjoying profits, many have fallen by the wayside in 2002, with more than 25 companies being taken over by regulators and many others on the brink. While marginal players will recognize all of the benefits of improved pricing and terms in their results to bolster investor and policyholder confidence, smart management teams will reserve conservatively to build a bank that will sustain them through the next soft-market cycle. In order to stay on top of their game, underwriters will need the discipline and the incentive to say no when pricing begins to soften to a level that is actuarially unsound unsound said of an animal, usually a horse, which has been examined for soundness and found to be unsatisfactory. . Yet, knowing when to say no is the key to success. If an insurer begins to hold the line on pricing too soon, it risks damaging the franchise. On the other hand, if pricing discipline comes too late in the cycle, the insurer runs the potentially fatal risk of damaging the balance sheet. Having this flexibility to increase and decrease business necessitates a lean, efficient infrastructure. Online Availability BestWeek subscribers can download a free printed copy of the full 24-page special report, "Review/Preview--Property/Casualty Edition," or a combination of the printed report plus a spreadsheet file of the report data for $100 from our Web site, www.bestweek.com. Nonsubscribers can download a printed copy of the full 24-page special report for $75 or a combination of the printed report plus a spreadsheet file of the report data for $200 from our Web site, www.bestweek.com. Call customer service for more information, (908) 439-2200, ext. 5742. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
|
||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion