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More Realistic Pricing Without Mid Eighties Capacity Crunch

Underwriting profit has displaced market share as the top priority for insurers and reinsurers today, according to Joe Fedor, Executive Vice President of U.S. RE.

Mr. Fedor says, "primary companies currently are increasing rates between 10 and 20 percent - and that's on top of last year's modest hikes." He adds that, "varying by line, location, and experience, reinsurers are obtaining increases in the range of 10 to 15 percent."

"The underwriting marketplace today is driven by shareholder pressure on managements to achieve an acceptable return on capital after the dismal performance of the last few years when competition ruled," Mr. Fedor observes. At the same time, however, he does not foresee a repeat of the capacity shortage that occurred in the mid-eighties when some lines became unavailable at just about any price.

"Declining stock values and interest rate cuts have reduced investment income. This is driving the return to cost-based pricing," Mr. Fedor comments. "Insurers are focusing on the more profitable lines of business and walking away from lines with deteriorating experience such as Trucking, D&O, E&O, and Professional Liability."

"Managing General Agencies are losing support for some lines of program business where claims costs are exceeding inflation," he points out. "Even where the MGA has a profitable program, if the fronting company doesn't like the particular industry, the MGA may be left without a market." In some instances of this kind, Mr. Fedor suggests that U.S. RE can come up with reinsurance support that will make the program attractive to the primary insurer or fronting company.

"Our brokers have deep experience in all markets. They have a bias toward innovation. With long standing relationships that have produced profitable business for reinsurance clients, we can usually find solutions to the most difficult problems of price or availability. The U.S. RE team is well-equipped to serve clients in this changing market," assures Mr. Fedor, one of the Company's founders.