The past two years have not been kind to Jack Graham, founder and CEO of International Catastrophe Insurance Managers, and people like him.
By his estimate, catastrophes over the past two years have cost the insurance industry a pretty penny, to the tune of $125 billion. Insuring against losses of such magnitude is a gamble even Vegas high rollers don't make lightly, especially with carriers retreating from the property-catastrophe market.
That has cost some managing general agents an entire business line. "We've seen a couple of companies pull out of the marketplace," says Graham, who is based in Colorado. "We've seen a couple of MGAs lose their ability to underwrite on behalf of certain carriers."
While insurance prices outside of property-catastrophe remain soft, or "reasonable," in the words of one South Carolina-based managing general agent, within the property-catastrophe universe, prices are too hot to handle.
Reinsurance capacity has shrunk and catastrophe-damage estimates have increased by an order of magnitude, forcing carriers to set aside higher reserves. Add to that the fact that rating agencies have made their stress tests more stringent, and you have what amounts to a vicious squeeze affecting agents who underwrite on behalf of the carriers.
Graham says that managing general agencies that have not established themselves with a proven record are looking at tougher times ahead as issuing companies tighten their terms and make life more difficult for their wholesalers. "MGAs in general, I think, are scrambling fast and furiously right now to find more issuing companies to support, underwrite their business."
"It is a crisis," says Thomas K. Albrecht, head of Montgomery, Ala.-based Barclay Agency. Another Florida-based agent describes the atmosphere as "very chilly."
Not that agents specializing in property catastrophe are going to disappear any time soon. Most of them are well-diversified and have other sources of income. In fact, the tough environment for some may usher in a round of consolidation as wholesalers look for purchasing opportunities at good prices.
"They are survivors," says one leading executive with an excess and surplus lines underwriter. "They are street fighters."
While it's true that the property-catastrophe market is particularly tough, it means there's lots of opportunity. "Those that write in catastrophe-prone areas if they can place the business, it's a strong opportunity for them," said Michael D. Miller, chief operating officer of Scottsdale Insurance Co. "People are looking for protection, so they are in the market to buy. If price goes up and if you're a commission-based producer, your income goes up too."
July 1, 2006
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