London market contributor Paul Lawrence, head of the property division at Hiscox Global Markets, gave as succinct a description of the insurance market cycle as any we have heard. “High profits attract new capacity,” he said. “Without a significant increase in demand, the new capacity drives down price. Eventually profits turn to losses, capacity leaves the market, demand remains constant, prices go up, profits return, and we start all over again!”

Where is the insurance market — and more specifically, the E&S Florida insurance market — in that cycle today, and what does the near future hold? From E&S brokers to retail agents, domestic carriers and the London market syndicate, there is universal agreement that the current market is soft, has been soft for some time, and will remain soft through at least a portion of 2010. The only minor debates center on how we got here and what needs to happen to firm things up. Parties cite as contributing factors the historical cyclical factors such as excess capacity, increased competition, and declining premiums, along with the struggling economy, the lack of a catastrophic event, and Florida's volatile regulatory environment.

“Each market cycle is different, with its own unique set of challenges,” said E&S executive Kathy Colangelo, a senior vice president with Hull & Company. “The current cycle came with the challenges of declining interest rates, the sub-prime debacle and Sarbanes Oxley, where companies had to release redundant reserves more quickly than in the past. Also, 2009 was an extremely light catastrophe year, so insurers were left with capacity to write more business. These challenges collided with a full-blown recession and unemployment at levels not seen in some 30-plus years.