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Vendor Park Goes Jurassic

Last year was an extraordinary time of stunning financial meltdown and the advent of political change. While the beginning of 2008 appeared rather positive and upbeat, by the end of the year we learne

By George Grieve | Updated on January 31, 2009

Last year was an extraordinary time of stunning financial meltdown and the advent of political change. While the beginning of 2008 appeared rather positive and upbeat, by the end of the year we learned we were, in fact, already in a recession as the year had started; we just didn’t know it back then. In our own market, 2008 was a year in which executives who traditionally chafe at the heavy hand of regulatory oversight suddenly began to congratulate themselves for adhering to those same burdensome regulations, which had helped our industry avoid the worst of the financial crash.

Indeed, the P&C vertical, normally a staid financial underperformer, looks pretty attractive these days both to investors and employees. Three important facts underpin this relative health: First, most of the premiums spent in P&C are nondiscretionary–even in a recession we still must have car insurance and (assuming we still own a home) homeowner and maybe mortgage insurance; second, due to the aforementioned regulation and oversight, about two thirds of our investments are in high-grade municipal and government bonds, not mortgage-backed securities, and while bonds are not exactly making money, they are not tipping our carriers into financial freefall; and third, due to recent catastrophe experience and reserve strengthening, the industry as a whole has become significantly less leveraged (we are sitting on a ton of cash) and is capable of sustaining itself through a tough period. There also is talk, especially in the commercial market, of the much anticipated arrival of a hard market following an extended soft underwriting cycle. So, the best news to come out of 2008 for property/casualty is we still have a viable industry that will remain recognizably constant in 2009.

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