"It's not a hard market yet, but it's headed in that direction for the first time since 1999," said Jay Gelb managing director of Barclays Capital, who spoke Feb. 8 at a panel.
David McElroy, president of financial and professional liability products for Arch Insurance, said when the economy grows, so does business. "We are completely tethered to the economy," McElroy said.
When companies see their assets rising, they buy more insurance, said Brian R. Meredith, managing director of UBS Securities. "What drives sales is gross domestic product," he said.
Insurers are paying more attention to pricing and underwriting because interest rates, and investment income, are so low, Meredith said.
That wasn't always the case. McElroy said from 2003 to 2007, "if you were breathing, you made money."
But with investment returns hovering at about 3%, companies have to write more profitable business to reach their financial goals today, he said.
For instance, a 95 combined ratio in 2004 would have resulted in a 15% return on equity. To get that same 15% ROE today, companies have to produce a combined ratio of 87 to 88, McElroy said.
"It's difficult to translate that knowledge from the CEO to the underwriting level," McElroy said.
Gelb agreed that companies used to be able to win a 10% ROE, "just by showing up. You just can't do that anymore."
He said for every 1% decrease in investment income, companies must make up 2.5 points in their combined ratio.
But, he warned if companies maintain a too conservative approach in their investing, it could lead to missed opportunities.
Eric J. Andersen, chief executive officer with Aon Risk Solutions, Aon's U.S. retail arm, said the market is a dichotomy. Insurers will push hard for price increases on renewal business, but tend to be more competitive on new business that they are trying to woo away from other carriers.