On other matters, he predicts:

• Congress is unlikely to deal with tax reform next year, leaving open the question of added taxes for foreign insurers.

• The battle by insurers to keep federal regulators at bay will continue unabated as the rules of the Dodd-Frank financial services law are implemented. But the head of the new Federal Insurance Office will be named, the office will start to take shape, and an independent insurance representative to the Systemic Risk Council will also be named—all in the first quarter.

• Implementation of the surplus lines reforms—through an interstate compact that is acceptable to the industry—will not occur by the June deadline. This issue will drag on because states starved for revenue will not agree to a deal, fearing critics will charge a particular state is being shortchanged.

• The insurance market will be stable in 2011, with employment and prices unlikely to rise significantly.

I don't consider myself an eternal optimist, but I find myself disagreeing with David on each of the last two items.

Maybe wishful thinking is clouding my view, but having covered the efforts of the industry to streamline regulation and taxation of multistate surplus lines transactions for more than a decade, I think the various trade groups involved have the momentum to see this one of the finish line of implementation. David's view that protectionist states will remain short-sighted ignores the fact that this is the first test of state cooperation over an insurance matter that has federal eyes glaring on it, as well as a GAO study of the market forthcoming.

As for David's market prediction, while stable isn't a totally dismal outlook, I'm in the minority camp of those who foresee a market turn coming this year. 

As a former actuary, the reports I read about reserve cushions dwindling are compelling, but without the benefit of rigorous analysis to support my view, I offer two alternative reasons for my forecast.

First, while the naysayers point to excess capital as a force that will keep the market soft, history shows that too much capital comes with a temptation to put it too work in ways that don't always make sense. It is likely that some insurers have made unintelligent decisions about how to deploy the excess. With other forces at play—such as week investment earnings and potential catastrophe losses—"the industry is teetering," analysts at Keefe Bruyette & Woods said in a recent report.

The KBW analysts and I part company, however, with the investment analysts saying a 2011 turn is unlikely. They point, in part, to rising accident-year loss ratio picks and the possibility of "management conservatism."

My own past experience in reviewing the loss reserve adequacy of insurers and reinsurers in both hard and soft markets reveals that management teams do not intentionally overshoot on loss picks, suggesting that rising loss ratios are evidence of actual deterioration.

I'll admit, however, that my experience on this matter is not very recent. As a magazine editor, I don't have the time to pore of loss triangles like I did more than 15 years ago. These days I rely on quicker, easier tests as prediction metrics. For example, I look at the results of a mainstream insurer with typical soft market coping strategies (whose identity I won't reveal) and watch for its commercial lines combined ratio to reach 105.

It did for the first nine months of 2010, which suggests the turn is coming soon.

Sounds arbitrary, but it worked flawlessly to help me foresee the last turn.

Managing Editor

Susanne Sclafane