Before Sept. 11, “the basic fundamentals of our industry were pretty poor,” he said. While the massive losses from the terrorist attacks “moved it forward, we were already into a hardening market” before Sept. 11, he said, noting that “dramatic increases” in specialty lines like medical malpractice and directors and officers liability began over a year ago.

“Commercial umbrellas usually lead the market. We started to see those hardening a year-and-a-half ago,” he said, going on to predict that the current market would last another two years.

Recalling history again, he noted that after the mid-1970s market turn, the next hard market came seven years later, and “after 1986, we waited almost 15 years for this market turn.”

“The bigger question,” he said, is not how long this market will last, but “how long until the next hard market? If we have to go another 15 years, then I think the industry's in a lot of trouble.”

Another question on Mr. Cohens mind was how much harder the current market is going to get. “We already may have seen the worst,” he said, suggesting that “the markets arent going to get dramatically harder than they are today.”

Doug Behnke, executive vice president of Overseas Partners US Re in Chicago, had a somewhat different view.

“From the reinsurer's perspective, we're generally happy with what we're seeing in the marketplace,” he said. “I would have to say, more specifically, that there's a long way to go in some of these lines–especially the professional liability lines of business. I don't think they have gotten to where they need to get and I think they're just starting to come out.”

William Allen, a managing director for reinsurance intermediary Guy Carpenter in Atlanta, predicted that rates would continue to climb until mid-year 2003. “I think it will go through another Jan.1 [renewal period],” he said. “So I don't think [the end] is going to be at the end of this year.”

He added that “more than how long the rates go up, I kind of care how long they stay at the top. How long will underwriters insist on making an underwriting profit? That's what we hope lasts a long time.”

Underwriting profits were hard to come by in 2001, even though rates were up enough for two-thirds of the companies tracked by National Underwriter to post double-digit jumps in net written premiums for the year.

In spite of aggressive rate-hiking, only five of the 32 publicly-traded insurance companies posted combined ratios under 100, with an average of roughly 113. Excluding the impact of Sept. 11 losses, one-quarter of these insurers would have combined ratios under 100, but the groups average–107–would still have been three points worse than the 2000 average combined ratio for this group.

The panel of specialty lines experts speaking at the February NAPSLO meeting assembled to discuss the topic, “Reinsurance in a Hard Market,” during a session subtitled “Guess Whos In the Drivers Seat?” With the experience of Jan. 1 reinsurance renewals behind them to justify their predictions, they agreed that reinsurers do not control the direction or duration of the market.

As reinsurance on specialty programs came up for renewal in late December and on the first of the year, “we really werent getting terms,” United Nationals Mr. Cohen said. Reinsurers were delaying, “and Dec. 31 expirations became Dec. 61, Dec. 91–they went into extensions.”

“We have to ask ourselves, 'Why was that? What was causing the reinsurers to really delay?'” he said.

Speculating on the answers, he said, “Their feet could have been in cement because of 9/11. Their feet could have been in cement because of past problems they were having–trying to cure that, figuring out what they were going to do. Or simply, they were just laying low and seeing what developed in the market.”

Suggesting that reinsurers were “playing the market–waiting, waiting, waiting to develop leverage to keep the prices up,” he believes reinsurers fell short of their revenue goals.

“I compare it to the retail segment of our economy, where most retailers, such as department stores, make their revenue between Thanksgiving and Christmas,” he said. “If they don't do what they need to do in that period of time, they don't make their numbers for the year.”

Mr. Cohen said that reinsurers hes spoken to told him that 65 percent of their revenue comes from Jan. 1 renewals and that they have admitted they didnt hit their revenue targets.

“The natural forces of the market caused deals to go other places–whether that was ceding companies increasing their retentions or an insured seeking out other market alternatives,” he said.

Reinsurers are “sitting here in February saying, I didn't make my numbers for the year. What do you all think is going to happen?” he added. “They're going to start being a little more aggressive, I think. There's capital out there that has to be deployed. Numbers have to be made. Budgets have to be met,” he said, suggesting that they might settle for lower premiums on renewals that come up the rest of the year.

Analysts speaking at the Property/Casualty Joint Industry Forum in January were similarly pessimistic about the duration of the hard market, pointing to the influx of capital as a factor shortening the hard market. (See NU, Jan. 21, page 6.)

In a recent interview, Michael Paisan, an analyst from Williams Capital Group in New York, told National Underwriter that he believes the hard part of the cycle will continue “for at least another couple of years,” but that the rate of premium increases will begin to level off in 2003.

“The second derivative of rate increases will continue throughout most of 2002,” he said. Explaining the term, Mr. Paisan said that rate increases slowed down just before Sept. 11 and reaccelerated after the terrorist attacks.

The reacceleration is probably good for another year, he said, noting that company managements were still disclosing rate increases of 25, 30 and 35 percent on fourth-quarter conference calls.

For some management professional liability lines, like directors and officers insurance, executives disclosed rate changes coming in at more than double those levels.

At Warren, N.J.-based Chubb and Chicago-based CNA, executives said they saw 70 percent rate increases on D&O renewals in 2001. At CNA, Steven Lilienthal, president and CEO of p-c operations, said that excess layer D&O renewal rates were 300 percent higher than expiring rates during the fourth quarter of 2001.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 1, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.