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How soft is soft?

In the non-admitted property/casualty insurance market, the answer may be reflected best by stabilized earthquake coverage rates for many risks and the reappearance of some risk managers who long have self-insured their exposures.

There still is an overall shortage of earthquake capacity. And, those few self-insured risk managers with large engineering firms and colleges who have re-emerged to seek quotes in the surplus lines market on professional, legal and employers liability rates are only window shopping right now. But, both scenarios were unheard of just a year ago, when market executives wondered how much softer the market could become.

The year-end renewal season answered that query without any doubt: Insurers still are striking sweet deals for most property/casualty lines.

Indeed, "we've even seen stock companies significantly undercut their own surplus lines companies," observed Warren S. Stanley, president and chief executive officer of Swett & Crawford Group, the Los Angeles-based wholesale brokerage unit of The St. Paul Cos. Inc.

As a result, retail brokers increasingly are shopping around for the best deals, sometimes for as long as 60 days, compared with 30 to 45 days two years ago, said Paul L. Genecki, senior vp of The Schinnerer Group Inc. of Chevy Chase, Md., the underwriting manager unit of Marsh & McLennan Cos. Inc. "It's making every renewal, every piece of business harder," he said.

"We're trying to figure out the next stage after paranoia," observed David Hartoch, president of Sherwood Insurance Services, the San Francisco-based wholesale brokerage unit of Aon Corp. "Everybody is nervous about their business and their clients."

Surplus lines insurers that lose large accounts often cannot understand how other underwriters can afford to cover those risks at such reduced rates. "You never know if the other underwriter is seeing the same information," said Chuck Seymour, vp-medical products for the specialty division of Zurich-American Insurance Group in Schaumburg, Ill.

Smart shoppers will find that insurers will cut rates for many casualty risks by 10% to 20%. Property rate cuts in the surplus lines market often are close behind.

However, not all risk managers are taking the cheapest rate after they finish shopping.

"In an effort to distance yourself from another quotation, there seems to be a great emphasis placed on giving the insured an incentive to make the decision on something other than price," agreed Kevin Brooks, president of General Star Indemnity Co., in Stamford, Conn., a surplus lines unit of General Re Corp.

One example is offering umbrella liability coverage with a personal umbrella extension for the owner of the business, especially on large accounts or with program business, he said.

In other cases, the quality of risk management services counts more than obtaining the cheapest rate, Schinnerer's Mr. Genecki said.

Pockets of problematical pricing remain, though, including general liability for construction firms and professional liability for real estate agents.

Overall, though, casualty rates are "just as soft as they could possibly be," Sherwood's Mr. Hartoch said.

Non-admitted insurers are cutting rates for high excess liability coverage 10% to 25%, wholesale broker executives estimate. Rates for low-layer excess coverage are falling 10% to 15%, they said.

General liability rates in the non-admitted market are flat at worst and 15% cheaper at best, broker executives said.

Even the few competitors that write product liability coverage for manufacturers of medical products and pharmaceuticals are dropping rates 2% to 5%, Zurich-American's Mr. Seymour said.

Those product liability insurers also are more willing to offer occurrence-based coverage than they have been historically, he said.

Competition also is heating up for directors and officers liability risks, but market executives are split over whether that has translated yet into rate cuts.

Surplus lines insurers still largely write that coverage, but an influx of markets has boosted capacity and spurred competition, driving rates down about 10%, Mr. Hartoch said. D&O and miscellaneous professional liability rates are "going the same way as casualty rates."

Swett & Crawford's Mr. Stanley said that D&O rates have come under major pricing pressure during the past six months.

Referring to non-profit D&O and errors and omissions coverage, Vickie Kartchner, president and chief operating officer of TIG Excess & Surplus Co. in Phoenix, said, "There are a lot of carriers that want to get into those lines," so for the short term the market is disrupted and prices are falling.

However, the insurers that are not familiar with this area will not stay in it long, she predicted.

Others say D&O rates are flat.

"I think the price has just gotten to the point where carriers that are offering the coverage are standing back a bit and considering their exposure-to-premium-level equation," Schinnerer's Mr. Genecki said.

More surplus lines markets are competing for professional liability business, as well, said Marcus Payne, president and chief operating officer of Dallas-based wholesaler Crump Insurance Services Inc., the largest unit of holding company Price Forbes North America.

The surplus lines market has expanded similarly for employers liability coverage, according to Sherwood's Mr. Hartoch. A dozen insurers now offer that coverage, compared with one or two only a few years ago, he said.

Standard admitted markets are beginning to entertain some employers liability risks, which they would not touch just a few years ago, Mr. Genecki said. Surplus lines insurers, though, still write the bulk of that line of business.

Mr. Genecki expects that standard markets next will begin challenging surplus lines insurers for pollution, hazardous waste cleanup and asbestos abatement liability business.

Not all risk managers with liability exposures, though, will find deals from surplus lines insurers, even in this soft market.

General liability for contractors, particularly in California, remains a tough risk.

Also in California, real estate brokers have been hit with 12% rate hikes for professional liability coverage, Mr. Genecki said.

Though professional liability rates for real estate agents in other urban areas are stable now, they likely will climb 5% to 10% this year because the frequency of claims is climbing, he said.

Many of those claims have been filed by property sellers who claim agents promised high selling prices so they could land the accounts. The plaintiffs claim that those agents failed to deliver, though, because of depressed market conditions that the agents knew existed, Mr. Genecki said.

In addition, primary general liability coverage rates for residential health care facilities, like nursing homes, increased modestly for the most part nationwide, said Tom Mulligan, senior vp of underwriting and marketing for Western World Insurance Co. in Ramsey, N.J.

And, some long-term care facilities in the Texas and Louisiana area faced rate hikes of as much as 10%, he said.

On the property side, rates for non-catastrophe coverage "are just like casualty," Mr. Hartoch said. "They're just as soft as they can be."

Mr. Stanley agrees property rates are soft, but he does not see them abating as much as casualty rates.

Still, risk managers can expect better deals on property risks.

General Star's Mr. Brooks said property rates typically are falling 10% to 15%, though large accounts can negotiate even better deals.

Only risk managers who have reported losses recently or who have catastrophe exposures are seeing rate hikes, which generally do not exceed 10%, said Paul McCain, vp of Crump subsidiary Crump Insurance Services of Texas Inc.

Even the earthquake market is "fairly stable now" compared with a year ago, when underwriters were commanding 10% rate hikes, Mr. McCain said. However, he added, there still is no standard market competition for this business.

Mr. Stanley described the earthquake market as "marginally better" because there is more capacity. Overall, though, there still is inadequate capacity, he said.

Deductibles also have stabilized, though they still are much higher than they were a few years ago, he noted.

With the Northridge, Calif., earthquake two renewal seasons removed, earthquake accounts in general are renewing "close to as is," he said.

Still, some risk managers cannot obtain the coverage because of the age of their buildings or their location in particularly vulnerable areas, he said.

Sherwood's Mr. Hartoch said that the market for earthquake and difference-in-conditions coverage "is very firm, especially in California."

Rate increases for that coverage range from 10% to 20% in California, concurred Mr. Hartoch and Bob Cohen, vp of marketing for United National Insurance Co. in Bala Cynwyd, Pa.

Mr. Hartoch said he will be interested in how various Bermuda-based catastrophe facilities fare this year in juggling their premium guarantees to their treaty reinsurers and their coverage limitations in various geographic zones.

If competition prevents them from meeting their premium guarantees, it "could be very expensive" for those facilities, he said.

So far, the Bermuda facilities have had a minimal effect on the surplus lines market, Mr. McCain said.

The windstorm market also is somewhat schizophrenic.

Some risk managers with wind exposures in Florida are negotiating rate decreases because standard lines markets again are writing more of that business, Mr. McCain said. The most successful risk managers have obtained 25% to 50% rate cuts, he said.

However, other windstorm risks face 10% to 20% rate hikes, United's Mr. Cohen said.

Surplus lines executives are split over how the non-admitted market will be affected by the ongoing consolidation of admitted companies and the problems that Lloyd's of London is battling.

Some say the upheaval in the admitted market and at Lloyd's already has sent much new business to the non-admitted market.

The consolidation "creates a lot of confusion in the marketplace," Mr. Brooks said. Particularly before a deal is approved by regulators, risk managers have some uncertainty about the insurers involved in the deal. As a result, risk managers "shop the account with more intensity than they otherwise might have."

In addition, when admitted insurers consolidate, they cast off coverage if they do not have a critical mass in that area, and some of it has flowed to the surplus lines market, said TIG's Ms. Kartchner.

Others, though, say they have seen little or no impact but that they expect more business to move from those consolidated companies to the surplus lines market.

Besides the increased shopping by retail brokers, surplus lines executives also are dealing with growing client demands for improved technology that would facilitate policy issuance and billing and that would allow direct online access to claims, accounting links and electronic mail.

"There is a conceptual desire for more automation, but a lot of them (clients) are struggling with what that means day to day," said Britton Glisson, president and chief operating officer of Essex Insurance Co. of Glen Allen, Va. Clients want one seamless system, but it is difficult to build a consensus on one system for all insurance companies, he said.