Hard Market 2009 Update

Colleagues.

So much has happened this year! I am excited to bring you my first real installment of news information I hope you will find useful. Major Link update coming soon!

On my last post I mentioned that Berkshire Hathaway was going to be the Next AIG. Here is a quick snapshot on what I plan to investigate this year.

There are several credit rating agencies that allow insurance companies to borrow money and loan it out. Their guidelines and ratings are what allow the lenders to offer them cheap money. I am sure you all know that AIG did a lot more then insurance. In fact they used some premium dollars from insurance to go into other arenas to try to get a better return on investment. In essence they were trying to make money with their great credit and insurance products was one of their revenue sources. Well I am not going to go into detail why AIG got hit but I do have a forecast about AIG, then I will move over to Berkshire Hathaway.

I believe AIG will be the first Nationalized insurance company. In fact I bet they are the first people to help out on this National Health Care Program. I have some other beliefs on this but I don't want to go to deep into it right now because I am not in a philosophical mood.

Onto Berkshire....The Insurance Industry is controlled by old Architects who don't like American Insurance companies messing with their turf. Berkshire is starting to make waves in the international community and are making the old school insurance architechts upset that they are moving onto their turf. There are several reasons for this. First they don't like loosing money. Second they don't like anything to change or be different then their current supply chain for insurance. For a great article on this vist my friend's Article called the Inefficency Paradox excellent reading! So why am I saying that Berkshire willbe the next AIG? Well it started once AIG lost it's AAA credit rating. Investors got scared and felt the old man Hank was just unable to run the company anymore. This was in fact something that was done by old world brokers...stir up the beehive to kill the boss, then the old world brokers would come pillage the honey.

The same thing just happened this month. Fitch dropped Berkshire's credit rating. If you look at some of the links in past blogs you will see one of the main reasons was due to the Ironclad control by Warren Buffet. I may be wrong and Warren may be able to hold onto Liberty Mutual and his other Insurance Companies but I sure there is someone or some powers trying to wrestle it from under his control. If this happens say goodbye to the last real American Insurance company! I will be talking about this as more information is released or I find out some more dirt.

Why Berskshire Hathaway will be the next AIG

2009-03-12T23:21:00.001-07:00

Bershire Hathaway was recently Downgraded one of the primary reasons was because of Buffet's Ironclad control of his company. If I recall correctly this same thing happened to Greenberg in 2005. Look at my posts over a year ago and this was predicted. Now that they are messing with Berkshire's credit ratings this is more proof the hardmarket is upon us. This is an impromptu post. I can assure you the next one will substantiate this. I have 3 months of data to put up but I am to busy trying to make a living. Wait till the next nugget friends!

Red Skies at night, sailors delight! Pt. 1

2008-12-17T14:38:00.000-08:00

The insurance marketplace we are about to enter is like a massive storm that comes around once in a lifetime. The aftermath of this turmoil is set to change the landscape of our industry in an unprecedented fashion. Fortunately we have abundance of talent, knowledge, and technology to weather this storm. If the industry as a whole can direct their resources and improve the infrastructure than we can come out ahead! It is time that all insurance professionals enter this new era, if not we will face the same challenges in coming years. Never before have so many moving parts been affected by the current financial crisis. If predicting insurance was anything like forecasting weather, then everyone should be aware of the storm clouds looming.
“Red skies at night, sailors delight. Red skies in morning, sailors take warning!”
It is no secret that there are problems in the financial sector. The stock market was good, money was being made, and for the most part insurance premiums were low. 2008 was set to be another profitable year for financial professionals. As the first quarter came to a close, some of the industry giants began grumbling of problems set to hit their firms. AIG and Berkshire Hathaway both predicted significant decrease in profits in early March. Nine months later we see their forecasts came true and what they had projected was just a small portion of the insurance industry and the related financial products. During this period where large amounts of profit was being lost we also experienced another anomaly, insurance premiums were at an all time low. The barometer started rising fast and the pressure from stockholders for performance was immediate. During this “calm period” companies did their best to write as much premium as possible, in some cases going against sound underwriting and actuary data just to retain business. There is plenty of data to support the fact that premiums have dropped this year. Competition, the driving force of our economy is at an all time high. So the people in the product and distribution chain I.E. carriers, MGA’s, brokers and agents had to work harder just to keep what they had. In some cases taking accounts that were completely unprofitable from a premium and servicing standpoint. Consumer’s dictated this drop in premium and the supply chain had to follow just to stay afloat. This “Red Sky” of low premiums and no profits is a daily lifestyle for the insurance professional. So how do we weather this storm?

Hard Market News Fresh off the presses

2008-12-16T14:10:00.000-08:00

Consumers: Resolve to Get Smart About Insurance in 2009

P/C Industry Achieves A Small Profit Through Nine-Months 2008 Despite Significant Deterioration In Underwriting And Investment Results

A.M. Best Special Report: Historic Market Turmoil-Boon for Reinsurers?

Increasing number of bankruptcies trouble workers comp self-insurers

Catastrophes, financial crisis hit insurer results

More Hard Market News 12-10-08

2008-12-10T14:46:00.000-08:00

Active hurricane season predicted for 2009

Russian insurers’ premiums increase: by 123%

Hard market coming: Aon Benfield

Hardening market comes at painful time

XL, Bermuda's Biggest Insurer, Is Said to Seek Buyer

XL Capital Plunges Despite Report It Is Seeking Buyer

United States: Insurance Industry Developments For Winter 2008

Another Hard Market Report

2008-12-09T12:19:00.000-08:00

Captive Insurance Study

Financial crisis to hit some captives

Fitch downgrades Allstate ratings on investment losses; outlook negative - Update

Insurers to preserve capital after losses-Swiss Re

Financial sector losses near $1 trillion

Who will Insure the Insurers?

A.M. Best Takes Various Rating Actions on Subsidiaries of Old Republic International Corporation

US property and casualty composite rate index drops 9% in November

Hard Market Insurance Update

2008-12-04T14:23:00.000-08:00

Higher Insurance Premiums in 2009?

Tort Liability, Insurance Rates, and the Insurance Cycle

Bad News on the Street, Insurance IT Strategy and the Financial Crisis

Now is the Best Time to Bid Your Corporate Insurance Program

Auto Insurance Industry Overlooked $16 Billion in Premium Losses

Poizner Approves $115 Million Insurance Rate Hike for 2.5 Million California Homeowners

Hard market v soft market

2008-12-02T12:57:00.000-08:00

PERCENT CHANGE FROM PRIOR YEAR, NET PREMIUMS WRITTEN, P/C INSURANCE, 1975-2007

The insurance market is cyclical

Greenberg says AIG needs federal guaranty: Report

Crisis shines spotlight on insurance compliance: Expert

Hard Market Storm Clouds on the Horizon, Be Ready For It.

2008-12-01T12:46:00.000-08:00

If you don’t recall, the last hard insurance market hit following 9/11 when insurers took a big hit on their investments on Wall St. This caused Insurers to focus on underwriting in order to make money on their core business, ...

Move fast on D&O, lawyers tell clients

Why Did The Camel Cross The Road?

'We don't need to make draconian cuts'

CAMICO: Changing of the Insurance Guard

Advice for Restaurant Owners to Reduce Insurance Premiums

Commercial premiums may rise as insurers post losses

2008-11-25T14:00:00.000-08:00

Losses in investments pose fresh challenges for industry

How financial meltdown would affect insurance prices

TARP May Breathe New Life into Insurers

Advisen Reports $9.6 Billion Impact of Global Credit Crisis on Liability Insurance Loss Ratios Forecasts $3.7B in E&O Insured Loss; Revises D&O Estimate Upwards to $5.9B; Calls for Market Bottom in Q2 2009 and Premium Increases by End of 2009

Reinsurer Stocks: A Fear-Driven Market Creates Opportunity

Don’t Mess Up Hard Market When It Comes, Says Munich Re Exec

P&C Soft Market Begins To Harden

Too soon to predict a hard market in non-life sectors; Fitch says

Insurance in the storm: buyers can expect the onset of a hard market

More Hard Market Info

2008-11-24T10:43:00.000-08:00

Here are some more valuable links showing the Hard Market.

Warning! Premiums to Rise

Merkel announces rate increases

Hard Market Buzz from the industry

hard market

2008-11-10T14:28:00.000-08:00

Selective Insurance Group Inc. Q3 2008 Earnings Call TranscriptSeeking Alpha - New York,NY,USA... reserves moves the hard market ahead one year; and lastly, property prices should rise in the first quarter of 2009 and casualty by the third quarter. ...See all stories on this topic
Odyssey Re Holdings Corp. Q3 2008 Earnings Call TranscriptSeeking Alpha - New York,NY,USAOf course at this juncture, there was a great deal of talk about the arrival of a hard market. Certainly, rational expectations would lead one to conclude ...See all stories on this topic
Citi Maintains a 'Buy' Rating on ACE Limited (ACE), Increases ...StreetInsider.com (subscription) - Birmingham,MI,USAThe company prudently and aggressively grew underwriting operations in the previous hard market...We are increasing FY08E-FY10E EPS to $7.80, ...See all stories on this topic
Raters' business model questionedReactions Magazine (subscription) - London,UKAll three speakers, quizzed by moderator journalist Herbert Fromme, agreed that catastrophe losses in 2008 were not sufficient to create a hard market for ...See all stories on this topic
Excited reinsurer predicts double-digit rate hikesReactions Magazine (subscription) - London,UKArnoldussen believes a return to the hard market is guaranteed because the reinsurance market is experiencing decreasing profits, a depleted capital base ...See all stories on this topic
Charman: Insurance has better prospects now than after 9/11 attacksRoyal Gazette - Hamilton,BermudaMr. Charman added: "We believe a hard market in 2009 is a near certainty." With the capital losses the industry had borne and with constraints on capital it ...See all stories on this topic
Reinsurers warn of higher prices in "hard market"SmartBrief - Washington,DC,USA"We have come back to a 'hard market,' " Munich Re management board member Ludger Arnoldussen said in reference to reinsurers' strong pricing power. ...See all stories on this topic
Soft In The Middle, Hard Around The Corner: Broker Executives See ...Insurance News Net (press release) - Harrisburg,PA,USAA hard market could be around the corner. And it could be harder than usual. A typical hard market comes in fast but ends faster than soft markets because ...See all stories on this topic
Fitch Revises CNA Rating Outlook to Negative; Affirms RatingsMarketWatch - USADuring the hard market of the early 2000's, management lost market share as it was forced to move unprofitable business off its books. ...See all stories on this topic
Axis Capital Holdings Ltd. Q3 2008 Earnings Conference Call TranscriptSeeking Alpha - New York,NY,USAWe believe a hard market in 2009 is a near certainty and we are amply prepared to maximize shareholder value throughout this important next cycle. ...See all stories on this topic

Demand & Supply

2008-03-14T19:42:00.000-07:00

The real problem with the economy does not stem from war, politics, or even supply and demand. The problem originates when there is no accountability and inadequate efficiency. This lack of commitment by the companies has created the chasm. A company is created to drive the economy forward, not to create a deficit at the consumers expense. There are several factors to consider before you can seriously understand this economical dilemma. The primary previously mentioned is the lack of commitment.

Commitment has an arguable definition so for the case in point we will use the moral definition. Commitment for this paradigm means the complete dedication to providing the best product or service. The reward for providing these products or services is growth not profit. The companies’ obligation to the consumer should always be the main priority and focus for the company. If the company cannot effectuate to provide the consumer the best product or service possible than the company should be responsible. With the current supply & demand archetype the consumer bears the responsibility with the form of increased taxes to cover government subsidization and / or increased cost of product and /or decrees in influx of income to the economy (this is usually seen in the form of downsizing). This leads me to my second case in point. Who is really at fault or rather who the hell is really accountable?

Accountability is established from the top to the bottom. Since a company is built from the ground up, so are the systems and rules that create the product or services sold. In today’s marketplace of constant acquisitions and management changes accountability is lost. The consumer then pays the price of being forced to purchase products or services that they did not want. This creates a communication gap between the consumer and the entities that were responsible for managing the user. The managing entities new growth now becomes a large liability over all therefore decreasing the value of the whole. In essence the company that acquires a new company assumes the same level of what it acquired not vice-versa. Is this a problem or is this business, or rather, free enterprise? The problem is the solution in this case. Convergence of accountability and commitment are required to stimulate stagnation. That is why we have technology.

The reason technology has changed drastically in recent years is due to consumers requiring new systems to increase efficiency or entertainment. In recent years we have seen the speed of computers increase more then 10 fold. We have also seen other technologies become mainstream like cell phones, pda's, and mobile computing. To support these new technologies software was created to handle the massive amounts of information that was readily available. In addition to software new forms of communication and new languages were created. Several companies capitalized by taking advantage of the technology when it first came out but failed to continue following the technology curve. Hence, new systems and technologies were created to assist the few who realized that this transition would never stop. The old concept of "If it ain't broke don't fix it" is still being practiced widely. Until companies can learn to continually use the new technologies, the economy will remain stagnant and eventually it will crash.

There is a solution to this problem. Wouldn't you like to know it? If your company is not accountable or efficient I want to say "thank you". Your ലക്ക് of understanding will allow me to control your market share.

Here Comes the Hard Market - Phil Duncan

2008-03-01T00:38:00.000-08:00

Here comes the hard market By Phil Duncan 02/29/2008

Yesterday two of the largest and most profitable insurance carriers announced serious financial instability in the insurance marketplace. Warren Buffet, the leader of Berkshire-Hathaway announced that "That party is over,” he wrote. “It is a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise.” He predicted that even with another catastrophe-free year, the industry's profitability will decline. “If the winds roar or the earth trembles, results could be far worse.” (Forbes 2/29/08). Warren Buffet was not the only carrier to feel the effects of the soft market and the housing crisis, even AIG is facing some tough decisions Joseph Cassano, is stepping down after the insurer reported $11.1 billion in losses on contracts sold to fixed-income investors (Bloomberg 02/29/08). Even Insurance Australia Group Ltd., the nation's largest auto and home insurer, said first-half profit dropped 68 percent, its sixth consecutive decline, as financial markets fell and storms increased payouts. The shares dropped the most in a month. Net income slumped to A$110 million ($95 million), or 6.07 cents per share, in the six months ended Dec. 31, from A$345 million, or 21.42 cents, a year earlier, the Sydney-based company said in a statement today. (Bloomberg 02/29/2008).
The prime indicator of a hard market is prime rate. I remember when I used to write P&C products in the last soft market. We were able to offer general liability to a general contractor building 1-2 homes for $500’s (and get paid 15% commission)! When this product was available prime rate was between 8.50 to 9.50% (http://hsh.com). Prime rate dropped to 4.0% in June 2003 and at this point in my career, working in the premium finance, industry my average policy premium for a similar risk was $20,000 (through a risk retention group!).
The next indicator of a hard market is when a California admitted carrier gets downgraded. Lincoln General (Which had an A VII rating this means100-250 million in assets) hit a major bump in the road According to AM Best as of December 18th, 2007, they have been downgraded and under review with a negative implication. They are now B++. HIH and Legion which were similar in financial strength, in fact HIH was Australia’s 2nd largest insurance carrier at the time according to According to the HIH 2000 Annual Report the company had gross premium revenue of $2.8 billion, total assets of $8.0 billion, total liabilities of $7.1 billion, with net assets of $900 million. 1 year later The federal government announces a royal commission into what is Australia's biggest corporate collapse.
Commercial Casualty Insurance Company of North Carolina in Liquidation Commercial Casualty Insurance Company of North Carolina did business in California under the name, “Environmental and Casualty Insurance Company.” The Norcross, Georgia, office of Commercial Casualty Insurance Company of North Carolina in Liquidation was closed effective June 30, 2006. (http://www.radtrust.com/ccic1.htm). ECIC is how our firm made a break in the premium finance world. Premium finance companies are the only entity that truly deals with all of the parties involved in the insurance transaction (For further information please review this article that I authored in 2003 when the hard market hit) http://www.insurancejournal.com/magazines/west/2003/11/03/features/33862.htm).
When any premium finance company or lender places a moratorium or limits your ability to finance a policy it is another indicator of a hard market or carrier insolvency. Our firm was unique because we had multiple lending partners so we were always able to place any premium finance agreement. We began to negotiate with all of our financial partners agreements that allowed us to place these risks, whether it was a RRG or an A Rated admitted carrier that dropped to insolvency in less then a year. The amazing thing was that we were able to maintain a 5% cancellation ratio on this book of business. Which allowed insured’s, brokers and wholesalers to have ample amount of time to place their book of business with the carriers that were accepting this risk. These insured’s that were being moved from under priced policies were backed by the almost bankrupt CIGA, which was also facing a horrendous workers compensation crisis (between 2001-2003 I recall 3 or 4 more admitted carriers going insolvent in the workers compensation field alone).
The solution for this crisis was the Risk Retention Group (http://www.nrra-usa.org/FederalLiabilityRetentionAct.htm). The problem was that most of the insured’s were moving from a $500 policy to a $5000 dollar policy. What complicated the matter is most agreements with the premium finance companies and their lenders required the contracts be between insurance companies with a B++ admitted or better rating. There were only a few RRG’s available at this time that were able to meet the financial requirements of the premium finance agreements so many construction related firms were unable to replace coverage. Even the Federal and State government realized the problem that was about to occur so Senator Burton introduced and passed the SB800 Bill which went into force on Jan 2003 in California. (http://www.leginfo.ca.gov/pub/01-02/bill/sen/sb_0751-0800/sb_800_bill_20020920_chaptered.html). This legislation protected the already fragile CIGA which was being depleted by loosely used underwriting guidelines.
I recommend that you re-evaluate all you clients. Learn to know you risk you are about to face some serious underwriting guideline changes. Good bye soft market!