The “invisible” hard market has arrived

The hard insurance market cycle has indeed arrived, only it’s “invisible,” Marsh & McLennan Companies president and CEO Brian Duperreault told a joint meeting of the U.S. Association of Professional Insurance Women (APIW) and Chartered Property Casualty Underwriters (CPCU) Society in mid-January.
Although a hardening market is coming into play, a market cycle that typically features higher premiums and a relative scarcity in some forms of coverage, its effects have been rendered “invisible” because of the staggering losses in the 2008 Q3 and Q4 markets, Duperreault said.
He noted that in 2008, the industry operated in a financial environment in which premium rates were rising, but underlying exposures were declining.
“There is, therefore, a better relationship between pricing and exposure, but it may not produce meaningful change in the top line (i.e. gross revenue),” he observed.
Assuming that insurers’ top lines stay the same, meaning there is little or no change in the absolute level of underwriting income, insurers may not see any changes to their bottom lines (revenues and expenses) that would normally be seen during a hard market, Duperreault said.
“The countervailing forces of rising rates and declining exposures producing the same top line may not translate immediately into an improved bottom line,” he said. “Couple that with continuing declines in investment income, and insurance companies will likely report flat or only modest gains in total income — even though the market has indeed hardened and the quality of their earnings has improved.
“Hence, an ‘invisible hard market.'”