To our clients, partners, and friends:

I wanted to take a moment to discuss the recent events in the financial markets and, specifically, their impact on the current insurance market and the implications for the future.

1929 was the “end of the world”.
1981-82 was the “end of the world”.
1987 was the “end of the world”.
2001 was the “end of the world”.
And, now, 2008 is the “end of the world”.

Just like in previous crises, there will be substantive change, economic hardship, and destructive forces. Coming out of the crisis will be economic gain, financial opportunity, and tremendous upside. I tend to be a “glass is half full” type of guy.

What do we know? The last few weeks – and, likely, the next few / several / countless weeks – have yielded significant investment losses. These losses will have an enormous impact on the economy, in general, and the insurance industry, in particular.

• There will be a significant number of business failures as credit dries up, demand slows, and “dominoes fall.”
• Business failures will cause increased claims on insurers.
• Insurers will be faced (in fact, already are and already have been) with diminished investment returns.
• Lower investment returns and higher claims will impact overall insurer profitability.
• Some insurers may fail. Who, when, and where? Only Warren Buffett knows. Clearly, “pure” property/casualty insurers will fare better than those insurers with life business and its attendant investment portfolio.

Equity Risk Partners monitors your insurers on a regular basis – daily, in certain cases – to ensure that we manage your insurance program as effectively as possible. As we discussed in previous correspondence, most states have guaranty funds in place that would respond to the failure of any admitted insurance company. Non-admitted carriers are not covered by state guaranty funds. As a result, Equity Risk Partners will have a “back-up” market for any non-admitted carrier. (For more information on admitted vs. non-admitted carriers, please visit our website. Our colleague, Nicole Ghaswala, prepared a Partners Perspective for you on this topic).

Insurer failure, diminished investment results, and higher claims will lead to a contraction of capacity in the insurance marketplace and – ultimately – rate increases.

Most “industry watchers” still believe there is $50.0 - $100.0 billion in excess capacity in the market. The Combined Ratio is an insurance industry metric used to show the percentage of each premium dollar used to pay claims and operating expenses. The current forecast for industry combined ratios is 103.2%. This ratio would need to approach 110% to significantly affect rates. As a result, we expect rate stability – slight firming for the remainder of 2008. While we believe we will ultimately see 10% - 25% rate increases, we have not seen any indication of market firmness, yet. Such increases will likely be a 3Q 2009 event.

Now, more than ever, is the time for patience, diligence, and thoughtful analysis. Panic and overreaction fuel the extremes. Equity Risk Partners is uniquely qualified to help you navigate these uncharted waters. We will be sponsoring a conference call for our clients, partners, and friends to discuss this situation in greater detail and to answer any questions that you may have.

The information for the call “The State of the Market”, otherwise known as “Survivor – Wall Street” is as follows:

We look forward to speaking with you on Thursday. In the meantime, if you have any immediate questions or concerns, please feel free to contact me or your Equity Risk Partners professional.

Thank you for your continued support of Equity Risk Partners.

Very truly yours,



Michael C. Marcon
Founder & CEO

“Just remember, this thing is not as black as it appears…We can get through this alright, but we’ve got to stick together, though. We’ve got to have faith in each other…”

- George Bailey