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Are your commercial clients budgeting for a hard market?


January 24, 2020   by Greg Meckbach


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As commercial insurance prices increase, you could have customers who literally have not factored new rates into their budgets.

“We have an understanding, clearly, that there are risk managers and [chief financial officers] of companies that maybe didn’t budget for the rate that is required,” said Gary Grose, president of Colony Specialty, an excess and surplus insurer owned by Bermuda-based Argo Group International Holdings Ltd.

“Being involved in those discussions and understanding the client’s perspective, yet getting the rate we need for our shareholders, is going to be a key part to success of 2020,” Grose said on a recent episode of A.M. Best TV.

In that episode, industry leaders attending the annual Joint Industry Forum were asked by A.M. Best Company Inc. about major challenges ahead for the industry.

“We have obviously seen the rate increases that we haven’t seen for many years,” said Grose. “Companies are going to be challenged to figure out not only getting the [right] rate, but is the client willing to pay the rate?”

The current hard market could continue for a while, Axis Capital Holdings Ltd. CEO Albert Benmichol said this past July during an earnings call. “Even with the increases that we have seen in the last two years, many lines of business are still not at acceptable pricing,” he said at the time, commenting both on his Bermuda-based company and on the industry worldwide. “We believe that pricing action will continue into 2020 and perhaps longer.”

In Canada, the topic came up this past November at the Top Broker Summit, produced by Canadian Underwriter. Panelists were then asked when the hard market will end and how this hard market is different from previous hard markets.

“Unfortunately for customers I think it’s got a long run,” Carol Jardine, president of Canadian property and casualty operations at Wawanesa Mutual Insurance Company, said at the summit in Toronto.  She alluded to the fact that many large Canadian carriers reported combined operating ratios of about 105% during the first six months of 2019. “If you are losing $1.05 for every $1 you write, you are not going to be sustainable for every long,” she said.

Charles Brindamour, CEO of Intact Financial Corp., was asked about the industry-wide return on equity (at 4% throughout much of 2018) during an earnings call this past November. A securities analyst asked Brindamour what sort of conditions would change the current hard market, and is it fair to say that a hard market cannot persist if the industry-wide ROE approaches 10%?

“I think it is fair, and we are not there,” Brindamour replied. “Because it is tough across all lines of business, the odds of upsetting the momentum [in premium increases] we are seeing, in my mind, is fairly small.”