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Whether times are good or bad are always a matter of perspective, and very much in the eye of the beholder. Occasionally, however, times can be “interesting” and take on the sinister connotation inherent in the traditional Chinese curse. They can even be a mixed bag of all three descriptions.
For this issue of ReMarks, I thought it might be instructive to consider how various market components view the current landscape from their individual and unique perspectives.
Policyholders – Unless otherwise impacted by the subprime crisis and the threat or reality of foreclosure, times are generally “good” for home and business owners, at least from an insurance perspective. Unless exposed to hurricane frequency and severity, the insured public should be enjoying stabilization, if not an outright reduction of insurance costs due to the competition prevailing among the “carrier” segment of the community. At the same time, for those of us living in the Sunshine State, there is worry that times will become more “interesting” if the ’08 hurricane season is a bad one, and results in heavy assessments to cover loss from Florida’s residual market mechanisms.
Insurers – For insurers, the times may be considered at least somewhat “interesting,” with some “good” elements and some not so good. The “good” times emanate from the profits resulting from the absence of the frequency and severity of catastrophe loss during the last two and half years. Concurrently, however, there are certain more “interesting” features of the market, such as the extent to which balance sheets have been adversely impacted by subprime losses; the competitive pressures exerted by a softer market condition; and the regulatory pressures being applied to reduce prices even further in certain states.
Also among the “good” things, carriers are enjoying reduced reinsurance costs for their protections which help offset their own need to lower premiums to policyholders. Companies may also be deriving some benefit from exploring other protection options such as Insurance Linked Securitizations which have become increasingly popular as a means to cover catastrophe exposures.
In addition, a “good,” “bad,” or “interesting” characterization may attach to a carrier’s perspective of the recently announced intention of the federal government to overhaul the country’s financial services industry, including the appointment of a “tsar” to assume responsibility for companies opting for a Federal Charter.
Reinsurers – As with the carriers, times can be similarly described as “good,” “bad,” or “interesting,” depending on circumstance. “Good” resulting from the nice numbers generated from the absence of heavy storm loss in recent times; “bad” if they have been hit by subprime or other investment losses, as well as a softening market; and “interesting” based on the apprehension of a severe hurricane season, and the potential for more regulation, federal or state.
Finally, although the times might be a bit “iffy” at the moment, let’s hope that future times will be “good” ones.
PAUL |
