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By DAN REYNOLDS, senior editor of Risk and Insurance®

BOSTON---It's kind of like sitting on a surf board waiting for the next big swell. Is that a bump I just saw on the horizon? Maybe it's over there, to my right, beyond the reef. That's what waiting for the hard market feels like.

Premiums are flat and prices have stabilized, so that the sea water we talked about looks unthreatening right now. But even now, there are little cosmic bumps going on that could be some of the first factors that will lead to a hard market, according to Juan Andrade, president of property/casualty for The Hartford.

For one, Andrade posited, it is small businesses that are doing the hiring right now. And it's one factor of recovery from a recession that businesses will bring on untested workers as they build back up. That could lead to all sorts of claims--and not just workers' comp.

Another factor to watch, according to John Edmonds, the credit chief for Philadelphia-based ACE USA, is the inverse relationship between insurance and credit. Sure, it's a soft market in insurance, but it remains a hard market in lines of credit.

After the financial collapse, banks pulled in their arms in a big hurry. Credit terms were severely tightened with such things as four- and five-year revolving lines of credit becoming an anomaly. Banks cut letters-of-credit terms down to one year, but Edmonds said he is seeing signs that some companies are getting the chance to go to two-year revolving lines now.

Another recession-related factor to watch for is the fact that, in the big companies, employment numbers have been cut as company's attempt to control costs to ride out the downturn. But that may be costing companies granularity in their ability to assess their risks, according to Andrade.

Some economists are calling for as much as 8 percent unemployment through 2014. And it's no sure thing by any stretch that the Dow is headed back to 14,000 any time in the next two years.

How much longer can insurers ride out this combination of low employment combined with what might be less than striking equity returns in 2011 and 2012?

"If ROEs collapse, then it is going to make the turn happen even faster," Andrade said.

So what to do? Maintain close relationships with your carriers, said Debbie Rodgers, vice president of global risk management for Aramark. It's a relationship business, and that involves meeting with your key risk partners at least once a year and diversifying your portfolio of insurers.

"Hopefully if I've been doing my job well, the market doesn't change," Rodgers said.

April 27, 2010

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