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By CYRIL TUOHY, managing editor of Risk & Insurance®

Part of the reason for the increase is that carriers are looking to recoup some premium income in the wake of two years of increasing loss ratios, said Curtis Anderson, president-elect of the American Association of Managing General Agents and president of national binding/programs with Itasca, Ill.-based RPS Inc., one of the nation's largest managing general agents.

"The carriers' loss ratios have gone up substantially so they've got to raise rates," said Anderson, who traveled to London with other AAMGA executives in mid-February for briefings with Lloyd's underwriters.

In 2006, the marketplace posted record profits and combined ratios in the 80s. But in 2007, combined ratios began to move up into the high 90s in some cases. And last year, some ratios exceeded 100 as carriers' investment portfolios tanked along with the stock market.

Anderson also said that several excess/surplus lines underwriters were predicting a hardening of prices in the third or fourth quarter of this year.

"There were a few that said they didn't see any real action occurring until 2010," said Anderson. "I prefer not to wait that long. I believe that by the second half of the year we'll start seeing things changing."

GOOD OPPORTUNITY FOR THE MGA AND WHOLESALER

With insurance prices generally soft, along with an uptick in catastrophe losses and an increase in overall losses because of price cuts, Anderson said the window had opened for carriers to level off and return to more "proper pricing."

He also noted that the insurance coverage that has flowed into the standard lines market at too low a price over the past year or two would start coming back, making for good opportunities for wholesale brokers and managing general agents this year and next.

Wholesale brokers and underwriters, he said, were predicting price movements in excess/surplus lines of flat to up by 15 percent.

"We pretty much heard for the future anywhere from flat to up 5 percent to 10 percent to 15 percent," said Anderson.

But even if carriers raise rates, that doesn't necessarily translate in higher prices, particularly this year because of the slow economy.

An insured with $1 million in receipts last year, for example, might this year have only $500,000 worth of receipts on which the coverage is rated because of the recession. Thus, a lesser overall price will still mean a buyer can afford the coverage, even at a higher rate.

In anticipation of price increases in the excess/surplus lines marketplace, some managing general agents have been hiring brokers, taking on new lines and investing in new technology.

"Some wholesalers will see the glass as half empty or believe that the economy is going to be bad longer, and in order to keep their margins stable, they need to lay off some people," said Anderson. "Others are looking at it with just a different view. They are saying the market is changing, the economy is improving and so we're going to spend those investment dollars so we're ready when the time comes."

The economic outlook from the perspective of the London market, he said, is a few months behind the U.S. market.

"Most of the people we talked to said they were just a bit behind the United States, but they had all the same problems and they really didn't expect to see the economic picture improve until next year," he said.

February 23, 2009

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