– what looks like 80 to 100 billion or more of capital destruction in our industry is certainly going to have an impact. You know we also look at people’s list of approved reinsurers – that’s going to shrink. People are going to have less financial flexibility after the first of the year. So, we certainly anticipate a rate increase but – back to Tony’s point – we haven’t seen a lot of it and in attractive non-cat parts of the business, we’re still seeing an aggressive price environment. If it’s something somebody wants to write and it was pretty well priced in the past, they’re going to write it and they’re going to write it aggressively. At mid-year, before the hurricanes, before the financial meltdown we were looking at a really soft market but we were looking at a market where combined ratios were in the 90s and there was room to give and we didn’t think that was going to change for at least another two years probably anyway. So this should accelerate it, but people haven’t gotten their head all the way around it yet.

McDONALD: One of the things we heard that’s driving prices is the re-estimating of the Ike losses, which has been getting progressively higher and people are saying the effect is already here, no?

TREANOR: I think people watch when you watch RMS increase their estimate up towards $20 billion. That seems to be where, whether it’s Lloyd’s or whether it’s VJ Dowling, everybody starts to be coalescing around the $20 to $25 billion number. I think that’s got people worried. But until the treaty renewals, they’re not doing stupid things but they’re not exiting the market. They’re becoming more conservative. They’re sitting back because they expect a change. It hasn’t happened yet. Certainly we’re not seeing, 10, 20, 30 percent rate increases that we’ve certainly seen in the past after catastrophes.

McDONALD: E.G., what are you seeing in terms of pricing and particularly what areas?

LASSITER: Well we’re not seeing anything yet. As Chris mentioned, it does take some time post-event for these things to work through the system. In our estimation the event here is not so much Ike. If you want to define a date it would be September 19th, which was the day that AIG got their bailout and Lehman went bankrupt and Merrill was acquired, which was the start of all the volatility or really the acceleration of the volatility in the investment world, which has sucked somewhere around $40 billion in capital out of the marketplace as of September 30th. Who knows where it is today but a lot is gone.
So it takes time for that to work through the system. So far we’re not seeing any real substantive changes. We will know when it happens. The broker mindset is we’ve got to get a reduction. When a carrier says no, can’t reduce, then he’s got to test the market. We’re seeing a lot of that yet. That’s one sign. The second sign is when the expiring carrier asks for an increase. We’re not seeing that yet. We’re not being told that’s occurring. Third is when a standard company says I’m not renewing this account or this book of business, this class of business. We’re not seeing that yet. So those are substantive ways that we in the specialty field will see it happening when it’s happening.
There’s shopping going on. There are some things happening. I’m a little bit distressed too by the earnings calls this quarter. If you look at them, the people are talking about it and they’re seeing some signs of a market turn and then they say, we’re poised to take advantage, well positioned for a market turn. Well there’s got to be fear or pain. There’s some of that but there’s not much. I’m not saying that’s not going to occur because we do have to get an acceptable return and we’re not getting it in investments right now. So it may be that the management pushes through enough of a mindset driven by need for acceptable returns on capital, which is not so much of what we have historically had, which is pain and fear.

McDONALD: Within specialty lines are there any areas you can point to that you think are particularly underpriced or particularly overpriced that are kind of aberrations at this point?

LASSITER: Well our assessment right now is that the most difficult line of business for us is general liability, especially primary general liability. It was the first to soften. It’s been under extreme pressure for four years plus. I think some other lines are under pressure but that one seems to us to be the one where we have had the most erosion of our premium levels and somewhat erosion of the price that is available in the market.

McDONALD: Dan, what have we seen in terms of pricing?

RYAN: In terms of pricing, these folks know it better than we do. They’re in the trenches every day. But I’d certainly agree with a lot of the sentiments that these folks have expressed. Certainly financial institution D&O, and Fortune 500 are certainly coming under extreme upward pricing pressure. Certainly credit sensitive (trade credit) business offered by companies like Euler Hermes, who are involved in credit sensitive products; those lines have over the course of the past year and at the economy, they’ve been ahead of the curve and have implemented price increases where appropriate.
On the GL, I agree with everything that’s been said. GL is typically the first line to go and we see through the course of the years GL pricing and the loss ratios begin to tick up, even though there had been some price firming in the marketplace. But over the last few years GL has given way. Specialty workers comp is probably another issue, another line of business that is going to give way again; probably to some price competition, especially in
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