IJ Asks: How Long Will the Hard Market Last

When the market is soft, the insurance industry speculates how long it will be until it turns hard… similarly, when it is hard, everyone speculates how long it will be until it turns soft. Insurance Journal pulled out the crystal ball and passed it around to several wholesalers for their predictions on how long the current hard market will last.

So how did the results fare?

Bill Newton, president of Lemac & Associates, Derek Borisoff, chairman of the board of Monarch E&S, and Harold Anderson, president of Kenneth I. Tobey Inc. see the hard market coming to an end around the new year.

“By the end of 2002, I think… competition will return, and the carriers will be hard pressed to continue increasing rates,” says Newton. “There’ll also be some new capacity coming into the market, when all the new capital that has been invested in Bermuda will start being deployed in the latter half of this year, and that extra capacity will also make it more difficult for carriers to continue increasing rates, and competition will start creeping back into the marketplace. One exception to all of this will be residential construction. Because there is no one who wants to jump into that line of business, I don’t see anyone on the horizon who’s willing to do so either,” says Newton.

“I feel that certain parts of the market will last longer than others,” remarks Anderson. “My best guess, I think by the end of this year you’ll see the market starting to soften significantly. We’re already seeing some reinsurers come out with some reduced rates, but they’re doing it in programs they want to write, so if it is a program that has historically been non-profitable for a company for a period of time, it’s going to be a long time before that comes back. But if there are attractive markets that can be corrected by rate increases and selective underwriting, you’re going to see people get competitive again, greed will set in, and they’ll start going.”

Bart Koch, Marshall Leicht, and Ken Horn are among those who predict another year and a half before the market softens. “I think it’s going to be a function of the financial market,” says Koch, owner of Tejas American General Agency. Horn, president of Austin Surplus Lines Agency, adds, “It’s really hard to tell, but I will be real surprised if it lasts much longer than 18 months.” Horn attributes his prediction to the reinsurance capital capacity.

Leicht, president of Leicht General Agency, centered his speculation based on “the fact that we still don’t have a rate adequacy. The reinsurance agreements that will come into place in the middle of 2003 will turn the market around.”

Jim Hippard, president of Yates & Associates, and Michael Heagerty, president and CEO of H.W. Gorst Co. both speculated up to two years before the market will turn. Heagerty attributed the softening of the market to an increase in rates. “It’s not as accelerated as in the 1980’s,” he says. Heagerty points out that the market has traveled from east to west, a comment that Hippard agrees with. “I think the west coast is going to last longer than some parts of the country. California was about the last to get hit this time, and the heartland got hit before the west, but after the east coast.”

Hippard adds, “This is the fourth hard market I’ve been involved in my 30+ years. In the early 70’s, it lasted for about a year and a half to two, and in the late 70’s, it lasted about two years, then the one in ’85 lasted about a year and a half into about mid ’86. This one’s been going on for awhile, and I think it’s going to be the longest. And the reason being is partially 9/11, but this time the capacity seems to be even more stringent. There is less capacity than the other three marketplaces. I think California will be a little longer than some parts of the country. We’re about half way through a three-year hard market. Probably by this summer we’ll reach the peak of it. I think the key this time around is the lack of capacity, that the distribution has really lessened up because of certain other criteria this time.”

Although the predictions varied, everyone in the insurance industry can agree on at least one thing. Borisoff sums it up best by adding, “Ultimately, I’m looking for a stable market.” Unfortunately, we all know that we can’t rely on a crystal ball to predict the future. Only time will tell us how long this hard market will last.

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