Time for Hard Market for Alternative Risk Transfer?

Captive industry insiders forecast a hard market and the surge in their sector that would result.

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Underwriters in the traditional property/casualty insurance market have been calling, begging some would say, for a hard market for months. The captive insurance industry experts at the Vermont Captive Insurance Association meeting have an interest in a hardening of insurance rates as well, and talk could be heard at the annual meeting in muggy, sun-shower-sprinkled Burlington, Vt. this past week that hard rates are on their way.

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So said Bill White, former head of captive regulation for the state of Delaware and now managing principal of consultancy Prism Strategies. White, unable to attend the VCIA this year, told Risk & Insurance® by phone that it appears that a hard market is likely to show itself during the fourth quarter given the uncertainty caused by the financial disarray and calls for increased regulation.

The growth in the alternative risk market that follows, White suggested, will not be business taken away from the traditional market.

Speaking during Wednesday's VCIA press conference, David Provost, deputy commissioner of the captive insurance division in the Vermont Department of Banking, Insurance, Securities & Health Care Administration, noted that an impending hard market was factored into his prediction of an above average year for captive formations in the domicile. At the halfway mark of 2009, Vermont has already seen 18 captive formations, that's compared with 16 in all of 2008.

One insurance executive attending the conference, who agreed to talk on condition of anonymity, expressed a sentiment shared by many others in the business, one would think. He said that the hard market should already be here, if not for certain carriers--no need to name names, even for carriers with several new names--that have been polluting the market with inappropriate rates while gunning solely for market share.

Of course, one could argue that for certain lines rates are already increasing, such as property-catastrophe. That larger insureds with poorer loss experiences are seeing their prices ratcheting up appropriately. Still, in some of the biggest of lines--namely workers' comp and general liability--rates remain "competitive."

However you view the situation, the "hard market" state of mind has not hit the alternative risk market. That's when risk managers and their bosses who normally rely on the traditional insurance market "perk up their ears" about captives, according to James Riley, business manager, captive solutions, at Zurich.

"That would be really helpful right now," he said.

August 17, 2009

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