Peter Eastwood, president and CEO of Lexington Insurance, noted that the duration of the economic downturn also makes this a unique moment in history, citing some facts presented in a recent Wall Street Journal article. In the Oct. 1 article, former Texas Senator Phil Gramm said that in every other recession since World War II, GDP recovered to pre-recessionary levels within five quarters, on average.

Today, 11 quarters after the onset of the recession in 2007, GDP remains below pre-recession levels. “That's more than double the average, and it appears that we're going to continue,” Mr. Eastwood observed.

On the other hand, he said the capital base of the property and casualty insurance industry base is at its highest level in history. “While that puts pressure on rates, and while competition is perhaps greater than all of us would like to see, it's a very positive thing for the U.S. economy and for people who buy insurance,” he said.

Looking back over the last three decades, the E&S segment's growth has outpaced the overall industry, with very event-driven growth in the last 10 years, he said, referring to the 9/11 attacks and a series of natural catastrophes. “That trend of large outsized risks and the increased frequency with which they are taking place is only going to continue, [which] naturally plays to the strengths of the surplus lines industry–its ability to respond post-crisis with new product,” he said. “We're innovative. We've got freedom of rate and form. Our ability to move is good.”

Other experts highlighted a more negative trend–the re-entry of standard lines carriers into the E&S marketplace–as a key factor beyond the economy that is keeping a lid of E&S premium growth.

Steve Vaccaro, CEO of Alterra Specialty, said that “some standard lines companies have actually established E&S companies or platforms,” while others have just moved standard lines underwriters over to E&S lines that they don't understand.

For long-term E&S market participants, MGUs writing on behalf of standard companies present another market obstacle, he said. These MGUs “don't have a vested interest in profitability. They just have a vested interest in revenue.”

E&S executives addressed questions about all three factors–standard markets, the economy and overall competition.

Q: Have you seen any evidence that the standard markets are retreating?

Mr. Vaccaro said: “I think they're getting more aggressive [and] they're doing it the wrong way at the wrong time in the market.”

“They don't realize that it's not as easy as they think,” he said, predicting that for some standard companies that set up E&S platforms, this will be a 12-to-18 month play at best.

Robert Lala, senior vice president of the casualty division of Liberty International Underwriters, said that the E&S market is supposed to fill gaps when the admitted market isn't providing coverage. “So to say they're encroaching on our business is a little bit of a misnomer. They're writing different accounts than they previously did, but we have to figure out ways to work around that–to fill other gaps.”

Louis Levinson, president of the E&S operations of Argo Group, said: “The E&S market generally has been more responsible than the standard markets. We jettison premium sooner, and we get back in when the time is right.”

There are a handful of newer E&S entrants that are trying to build market share, but they don't have enough size to move the market, he said.

“Right now, it's about the standard markets, chipping away at our edges, growing their books to a point when they start to get losses. Then they're lack of freedom of rate and form will come back to haunt them,” he said. “There's a reason that business was in our space. It was underwritten and priced a certain way for a reason, and they'll start to feel that pain,” he said. “That's when the market will change absent some significant event.”

Are they retreating now? “Not at all,” he said. “They have a voracious appetite for risk right now,” he said. Someone at the NAPSLO conference said “they have a tapeworm,” he reported.

Christopher Timm, president of Century Insurance Group, hasn't seen much retreat either. “We spotted one company in California pull out of habitational risk,” but nothing beyond that, he said.

Alan Jay Kaufman, chair of Burns & Wilcox, sees standard markets invading the “Middle America business” that has been a “sweet spot” for the wholesaler, in addition to the large-account business that's been most impacted by their presence.

“The smaller premiums definitely are holding us,” he said, adding that standard markets are also staying away from some unique niches like day spas and vacant properties. Still, he said, even some areas that you'd think would stay in the E&S market–like nursing homes–are being tapped by the standards.

Q: Have you seen any signs that the economy is improving?

Mr. Eastwood said positive signs show up “on a very limited level, noting that there's a little more activity in the transportation sector, and some more construction activity as well. “That's compared to last year and the early part of this year,” however. “If you go back and look at pre-2007 or even 2007, we're sitting at half or less” than those booming levels of both commercial and residential construction, he said.

Mr. Levinson also cited an uptick in construction–”not the big ones that we saw” pre-recession, but some small contracts are being let out.” In addition, he said, “We've got some business insuring manufacturers of RVs, which is clearly a luxury item. If you use that as a leading indicator, you'd say that's a good sign.”

But “the lifeblood” of the E&S segment–start-up businesses–”are still down….Maybe the standards are writing them, [but] we're not seeing them the way we used to,” he said.

Mr. Mulligan hasn't seen evidence that the economy is recovering in a meaningful way. “Our view is that it will be a slow recovery. But someday all the distressed and foreclosed buildings, homes and apartments will have to be refurbished and rebuilt. How long that will take is anyone's guess.”

“Sooner or later, many of businesses that purchased their insurance in the E&S industry will come back,” he said.

Q: What level of price changes are you seeing currently?

Mr. Levinson didn't cite actual figures, but said that rate changes, while not meaningful, have crossed from negative to positive territory.

Alterra Specialty's renewal figures reveal a 5-6 percent downward movement, on average. Last year it was about 10 percent, he said, referring primarily to the property brokerage portion of the portfolio.

Turning to casualty, he said that for the $10,000-$25,000 accounts that typify the book, “you have to be price sensitive, but not price aggressive,” reporting that the pricing there ranges from flat to up 5 percent. On smaller contract binding accounts, rates are down 2 percent, he said.

Mr. Timm said his company's average overall casualty price change is 4 percent, while property is flat. “I don't believe property, especially small specialty lines- type property can go down, or should go much lower,” he said.

Mr. Lala said LIU's pricing is off 5 percent year-to-date–”and that's accounts at $10,000 and accounts of $750,000. So it's across that entire book, across the country.”

Ed Mazman, senior vice president of Ironshore's U.S. property unit, said hit ratios have been down over the last few months–a reflection of more aggressive pricing in the marketplace.

“You usually see this around this time of the year,” he said, noting that the number of property submissions declines significantly every year after July 1. “So you have a lot of markets looking at the same business [and] it becomes more competitive.”

Q: Is the soft market going to end soon?

Mr. Timm said: “I don't see any signs for necessary for a market turn. I think 2011 is going to be a lot like 2010.

Mr. Kaufman had the same assessment. “I don't think we'll see the continued erosion. We may see flattening out at best.”

Mr. Lala said he doesn't think E&S premiums will rise until the economy changes and employment comes back, “which is why it's now prudent to say it's probably going to be 2012. I think that if we had renewed every single account [this year], we probably would still be 20 or 25 percent below our planned number because of exposure bases being reduced,” he said.

Mr. Mulligan said, “I don't expect to see any improvement for the remainder of 2010 and I'm not optimistic that we'll see any improvement in market conditions from an E&S perspective in 2011.”