Volume 17

Partners' Perspective

The State of the Insurance Market - 2009 "Insurance Idol"

We are pleased to provide you with this overview of the current state of the insurance marketplace and its impact on private equity transactions and portfolio company insurance programs. Like the television phenomenon, American Idol, the current state of the insurance industry has three distinct "performers" all "singing" to their own "tune."


Our first performer, Executive Liability, is young and hip. Still relatively inexperienced, he performs with soul and passion. His groupies are boards of directors that follow him from venue to venue just to be in his presence (and to get defense costs fronted). He has chosen the hip-hop standard by

Run DMC / Aerosmith - "Walk This Way"

"D&O clients always hidin' 'neath the covers 'til I talk to your broker, he say
He said, "You ain't seen nothin' rates are gonna be jumpin', then you're sure to be changin' your ways.

Companies publicly traded, where rates once abated. Oh, the times I could reminisce
Bankers all around; Class action's got them down
And they will be the hardest hit. Like this.

Seesaw swingin' with the boys from the private cos. and your revenue goin' nowhere
Singin' "hey diddle diddle" your business in the middle of a recession that just don't care.
So, you took a big chance and decided to refinance with a bank that was ready to play
Wasn't me they were foolin' 'cause they knew what they were doin' 
As the credit started slippin' away.

They're tellin' you to
Hold On Tight, Hold On Tight
Hold On Tight, Hold On Tight
Just lemme raise my price. Not nice.

GPLs gettin' harder; better work smarter; the rates are climbin' way up to here
5 - 10% increase is what you're gonna get
With claims on the rise, I fear

EPL and Fiduciary have not changed significantly and the boys said there's nothin' I missed
Assumin' no more layoffs and investments start to payoff
The rate should be flat I insist. Like this!

Seesaw swingin' with the boys from reinsurance and their rates flyin' up in the air
Singin' "There's less surplus and we need better terms and we just don't care"
New guys takin' a chance at the D&O dance who look like they're ready to play
ACE, AWAC, and CV Starr are not foolin' and they know what they're doin'
They are markets that are here to stay.

And now, our judges' comments:

"Great rendition, dawg."
Randy Jackson

"I, um, kinda' like, um...yeah."
Paula Abdul

"I believe you really captured the spirit of the industry. You showed me how rates will be firm for selected areas, especially for public company D&O and financial institutions. I also now understand why Employment Practices Liability rates will firm as a result of increased layoffs. I really liked how you showed that General Partners Liability will be firming as a result of less than optimal investment returns by many private equity firms. I liked it. You're goin to Hartford!!!"
Simon Cowell


Our next contestant is Property & Casualty. This country duo harkens back to the days of yore. They have chosen the standard

Willie Nelson - "On the Road Again"

On the rise again
Rates are about to get on the rise again
No investment income and lower cash flow is the reason, my friend
And they can't wait for my rates to rise again
On the rise again
Rates are goin' places where they haven't been
Economy's in a place we may never see again
And all that means that rates are on the rise again

Prop - er - ty
This will be the first to rise significantly
5% - 20% increases is what you will see
And that's before we factor in catastrophe
So, property
Is on the rise again
Carriers are reducin' exposure and then
The property rates will be on the rise again.

Cas - ul - ty
5% - 15% increase with poor loss history,
For comp, auto, and general liability
As layoffs affect carrier profitability
So, casualty
Is on the rise again

Rates are about to get on the rise again
You can thank AIG for this mess we're in
Their fightin' hard to play, my friend
But, for now, rates are on the rise again.

And now, our judges' comments:

"Great rendition, dawg."
Randy Jackson

"I, um, kinda' like, um yeah"
Paula Abdul

"Are you kidding me? You call that a performance? You have a record economy for more than a decade and you didn't save for a rainy day? You based all of your decisions on investment income? Aren't you supposed to make money by taking in more premium than you pay out in losses? OK, OK, I'm calming down. I did like your lyrics. And, you really only do this to us every 6-7 years or so. Fine, Fine. You're going to Hartford!"
Simon Cowell


Finally, we'd like to present Employee Benefits. "Benefits" is cut from rock n' roll roots and has chosen the classic

Bruce Springsteen - "Born in the USA"

The D.C. is now Obama's town
The COBRA subsidy was the first change to hit the ground
65 percent is way too much
When you factor in the other changes and such

Warn-ing to the USA
This is a Warn-ing to the USA
Warn-ing to the USA
Warn-ing to the USA

I got in a little home town jam
So I filed a claim with the doctor-man
Kaiser and Humana are all that stand
Until U.S. healthcare becomes like a foreign land

Warn-ing to the USA
This is a Warn-ing to the USA
Warn-ing to the USA
Warn-ing to the USA

"Ancillary lines" will consolidate
As the carriers market share starts to abate
Costs will rise 9 to 12 percent
But "buy downs" should make a dent

Warn-ing to the USA
This is a Warn-ing to the USA
Warn-ing to the USA
Warn-ing to the USA

Underwriting has become more tight
As they hold to margins with all their might
They're intact and growing share
Most plans include increased copays
Restrictions on drug plans and deductibles will raise

We had an industry of many who played
Aetna, Cigna, BC, and UHC are all who stayed
Consolidation has taken its toll
And the uninsured are on the corporate dole

Warn-ing to the USA
This is a Warn-ing to the USA
Warn-ing to the USA
Health insurance is gonna change in the USA

Warn-ing to the USA
This is a Warn-ing to the USA
Warn-ing to the USA
Keep the faith and it will all be OK

Judges, your assessment of Employee Benefits, please.

"Great rendition, dawg."
Randy Jackson

"I, um, kinda' like, um yeah."
Paula Abdul

"Exceptional performance! You really captured the spirit of the industry. Lots of promises about reform, but not much action. Rates continue to increase, but employers are modifying their costs by buying down plan options. The COBRA subsidy has helped offset some costs as employers reduce headcount. I get it. I liked it. You're going to Hartford!"
Simon Cowell


We hope that this latest installment of Insurance Idol has given you some insight into the current state of the insurance market. Please feel free to contact your Equity Risk Partners professional with additional questions or concerns.