NAPSLO Mid-Year Meeting Largest in Association’s History

The National Association of Professional Surplus Lines Offices (NAPSLO) held its mid-year meeting Feb. 24-27 in San Antonio, Texas—the largest such meeting in the history of the association.

Originally scheduled for last September, NAPSLO’s Annual Convention was canceled after the Sept. 11 terrorist attacks. As a result of this cancellation, more than 1,400 individual members registered for the Mid-Year meeting to make up for lost time.

Feb. 24 and 25 were left open for members to conduct private networking meetings.

John Latham, NAPSLO immediate past president, convened the Feb. 26. session by presenting awards to Richard Polizzi, NAPSLO treasurer, and Orville Jones, president of the association from 1998 to 1999. Latham also officially passed presidential duties, as well as the official president’s gavel, to current NAPSLO president Tapley Johnson, Jr., quipping, “My number one goal (as NAPSLO president) was to bring us a hard market.”

NAPSLO secretary and Mid-Year chairman H. James “Jim” Griffith then presented volunteer awards to Mid-Year committee members David Hirschberger and Steve Gross.

Following the opening session, the first of two scheduled panel discussions, “Reinsurance in a Hard Market (Guess Who’s in the Driver’s Seat)” took place. Christopher McGovern, vice president of national specialty programs at All Risks Ltd., moderated the discussion. Panel members included William Allen of Guy Carpenter & Co., Douglas Behnke of OPUS Re, Bob Cohen of United National Insurance Co., and Paul Goodwin of American Re-insurance. The discussion dealt with reinsurance capacity following Sept. 11, and how the industry would be affected.

The second panel discussion, “Placement in a Hard Market (And By the Way, How’s Your E&O?),” examined placement processes and E&O issues in hardening markets, and was moderated by Maureen C. Caviston, president of Partners Specialty Group. Panelists included Thomas Ahart, president of the Independent Insurance Agents of America (IIAA), Wiley “Skip” Cooper IV of CRC Inc., and David Leonard of Royalty Specialty Underwriting Inc. The three panelists provided perspective from the retail, wholesale and underwriting angles, respectively.

Differences between hard markets
Ahart noted that for retail agents, the current hard market bears similarities to the last one, which occurred 1985-87. “Agents are competing only for price” in soft markets, he said, whereas in hard markets, skilled agents continue to place policies effectively, adding, “Agents’ relationships with wholesalers and carriers are essential.”

The IIAA president cited notable differences, too, including economic recession and “pressure on underwriting profit after years of loose writing.” Ahart continued, “Capital providers are now requiring as much as 80 percent profitability” of insurers. “We blame rate increases on wholesalers and insurers,” he declared, to general laughter.

Cooper, representing the wholesalers’ perspective, pointed out one major difference between this hard market and the one before it: “This one isn’t a capacity shortage—the market may change.” Cooper also argued that different markets are hardening for different reasons. “The catastrophe market has been steady since the mid 1990s,” he said; non-catastrophe lines, however, have been “undeveloped” and “overlooked” for many years. “Casualty hasn’t even begun to turn yet,” he said. “Property is at a much more adequate spot in the market… It’s as hard as it’s gonna get.”

Leonard said that from an underwriting angle, the current hard market is being driven by different factors than the preceding one, including reserve capacity, excess losses, Sept. 11 and the Enron bankruptcy. “The market needs to change its balance sheets,” Leonard said. He also forecasted that the current market hardening will be prolonged, and is “not a quick fix.” Like Cooper, he pointed out that the property market had been hardening since 1999, but casualty is “nowhere near repair.”

Submissions overload
Another aspect of hardening markets the panel addressed was the sometimes drastic increase in policy submissions with which many underwriters must contend.

Leonard noted that some underwriters have seen 100 percent increases over the last year. He stated that his own office sees roughly 300 submissions per day, an inundation that makes it hard to be responsive to customers. “Wholesalers should qualify risks before submitting to carriers,” he suggested. Underwriters, however, should also make clear to wholesalers what sort of business they’re willing to cover.

Leonard said that a shortage of underwriting talent is exacerbating both the submissions logjam many carriers are experiencing and the hardening market conditions. “Losses in investment income, however, mean carriers will have to profit from underwriting.”

Cooper cited carriers’ negligence regarding the lack of talent Leonard mentioned. Many carriers reduced staff instead of raising rates, which gradually drained underwriting talent.

Ahart pointed out that for retailers, smaller policy submissions warrant less mistrust, resulting in less scrutiny, while more intricate risks are usually harder to place. Because many carriers are desperate for new underwriters to increase premium revenue, they don’t always take the time to train them properly.

Non-renewals marketing
Caviston pointed out that retail brokers are having to market more non-renewals, and Leonard squarely faulted reinsurers for increased non-renewals. “Reinsurance is beginning to affect a lot of things—exclusions for terrorism, mold, cyber risk…” He further stated that because carrier changes mean new restrictions and new policies, changes should be put down in writing.

Cooper noted difficulties determining which companies are seeking new coverage and which are just blocking markets. “Carriers don’t want blockage, but they do want qualification of risk,” he said.

Cooper also cited submission formats as problematic when trying to place non-renewals. “Carriers are restricting coverage even on renewals,” he said. Because myriad new restrictions are not easy to communicate to customers, some sort of education process is needed.

Ahart said that carriers have been too lax in accepting all sorts of new accounts, which are now being non-renewed under closer scrutiny, and called for tighter underwriting practices.

Rating downgrades
Rating downgrades become more precipitous in hard markets, as the panel noted, which means wholesalers and agents must pay close attention to them.

“If a company’s rating changes from ‘A’ to ‘B,’ selling can get difficult,” Cooper said. “If people don’t take care to use only ‘A’ and ‘A-‘ ratings, things could get dangerous, especially in this economy.”

Ahart added, “‘A’ or above is okay, although now, even ‘A-‘ companies are scrutinized. It used to be okay even for ‘B+’ companies. Not anymore. Large accounts require ‘A+’ carriers.”

Regulation
IIAA president Ahart spelled out proposed regulation changes designed to help the property/casualty industry in a potentially prolonged hard market. “Big I still favors state versus federal regulation,” he said, “but things need improvement.” Rather than shift regulation more toward the federal government, Ahart proposed making use of more federal tools to assist state regulation. As examples, he cited the need for more uniformity for licensing processes, as well as for file-and-use laws and rates and forms.

Topics Carriers Agencies Legislation Excess Surplus Underwriting Reinsurance Market Training Development