Insurance Company Solvency
Issue #71
September 15, 2008
I have written a couple of risKey’s in past months about the insurance pricing cycle and how the insurance industry alternates between periods of soft and hard market conditions. In a hard market, coverage is harder to place and premiums grow. A soft market indicates premiums are stable or falling and coverages may be more readily available.
Beginning in March of 2005, the cycle began to turn towards a soft market condition. The result has been a “buyers” market with more players jumping into the game and decreased insurance pricing. Traditionally, this trend continues until profits disappear and financial ratings begin to slide, at which time a market correction begins with an upward movement of rates.
Things are Different Today
The current insurance market appears to be on the brink of change. Not only have profits been down as a result of pricing competition and lower return on investments, we are also experiencing one of the worst years in over a decade for losses as a result of natural catastrophes. On top of all this, the credit and housing markets are taking their toll on the financial health of the insurance industry.
Buyer Beware
In these times of uncertainty for some of the largest financial institutions in the world, including insurance companies, it would be prudent to pay attention to the financial strength when choosing an insurance company. In a marketplace increasingly focused on price, we are beginning to hear concerns about the financial stability of some carriers.
I have said it before and I will say it again, now is the time to insure your business with financially solid carriers. They may not always have the lowest rates, but they have demonstrated their ability to remain stable in all market conditions.