Insurance premiums were on the rise across all lines for both Property and Casualty coverages. These increases began steadily in the latter part of 1999 and were accelerating through 2001. The Catastrophic events of the WTC and Pentagon Disasters on September 11th was not the initial catalyst, but dramatically accelerated the process.

There are many causes for the insurers proposed need for increases but a large driving force is the Property and Casualty Insurers’ return on equity falling from approximately 13.1% in ’97 to 6.5% in ’99 and 5.8% in 2000. Investment Income is a large part of the income that Insurers derive and with the dwindling stock market returns insurers have had to rely on UNDERWRITING PROFIT. This coupled with the higher litigation awards, and a need to post higher reserves to cover eroding claims has forced the industry to concentrate on the profitability of their insurance writings rather than unrelated income. The industry responded with higher premiums, retentions and the beginnings of restrictions in coverages, especially on Property. We believe that the significant “hardening” in the Property sector is a direct result of the 9-11 loss coupled with already fragile reinsurance solvency.

In short, the industry began to respond like investment bankers, which is based on Insurers’ significant investment of their surplus in the Stock Market. They are demanding underwriting profits or simply putting an adequate return on their product. Capacity still existed (albeit diminished), but was conservatively being priced according to each specific exposure.

The Pre 9-11 Insurance picture was becoming more difficult to summarize, which has translated into a wary underwriting climate for many clients.