CEOs responsible for maintaining market discipline, say industry leaders

The responsibility for maintaining control over underwriting discipline even as competitive forces creep into the market goes all the way up the corporate ladder to rest with CEOs, industry leaders told the World Insurance Forum this week. In the “leadership forum”, representatives of the insurance, reinsurance and brokerage communities agreed insurers must stand tall in the face of competition if the industry is to see an end of wide pricing swings and instability.While the insurance cycle may not end, leaders say there is hope to moderate the cycle if insurer CEOs will continue to focus on the core business of underwriting.”Fitch says the U.S. property and casualty industry has not made an underwriting profit since 1978. I thought we were in the underwriting business,” says Michael Morrison, vice chair of Allied World Assurance Co. “We should be in the underwriting business.”This starts with insurance and reinsurance CEOs who must be the “drivers” of ending the insurance cycle, he says, adding that brokers and buyers have a role to play in terms of placing a higher emphasis on dealing with responsible, financially-sound carriers than on getting the lowest rate.Because of the persistent low interest rate environment, insurers must continue to charge technically correct rates, adds John Coomber, CEO of Swiss Re Group. Speakers note that this softening market is different than those in the past, not least of which because the hard market preceding it was excessively harsh and affected so many lines of business, but also because capital is flowing back into the industry, but is still being deployed conservatively. “You don’t have the over-capitalized companies [as in past soft markets],” Coomber notes. This is because while the industry’s results have improved, they still fall well short of investor expectations.”A big question is how will people [in the industry] react to lackluster valuation of equities in the insurance and reinsurance sector,” notes Brian O’Hara, CEO of XL Capital. “If the market sees discipline, I think that will raise valuations.”Overall, the industry needs to reassess how it conducts business, adds Joe Plumeri, CEO of Willis Group. “Growth is good, but underwriting discipline is primary. Everybody thinks we’re in the insurance business, not the investment business.” Insurers need to focus on making their business profitable, rather than relying on their investment portfolios to cover their losses and produce their only profits.