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December 3, 2008

As you know, today’s economic climate is tumultuous. A portion of this turmoil is falling on the insurance industry, including well-known national and global insurance companies. We wanted to shed some light on the situation, and provide a bit of insight into the state of the insurance industry.

There appears to be a “perfect storm” within the property and casualty insurance market, with the following factors putting pressure on current p/c pricing structures:

1. Underwriting profits have dwindled. The soft market cycle has been upon us for a while, and the reduced rates are now affecting underwriting profitability. In the first half of 2007, insurers earned nearly $15 billion of underwriting profit on their p/c premiums. In contrast, 2008 saw the insurance industry’s worst first-half year of underwriting performance in five years, losing more than $5 billion.
2. Investment income has virtually disappeared. Carriers earn investment returns from premium dollars. With the market down, industry investment returns are down by 18%.
3. Catastrophic claim pay-outs from regional storms as well as Hurricanes Ike, Dolly, and Gustav have taken a chunk out of many carriers’ reserves.

While the p/c insurance industry has historically been a cyclical one, this triple play is unprecedented. Typically insurers reduce rates to gain market share, but raise rates once prices bottom out to the point of underwriting losses and marginal profitability. So far, we have not yet seen any market hardening, though there are indications pointing toward the possibility of some level of stability in 2009. But at this point, it is too early to say what will happen with certainty.

Bear in mind that this industry is highly regulated to protect purchasers, but we still monitor our carriers daily, and are communicating with them at the highest levels. We are leveraging our Assurex Global Partnership and our industry associations (RJF President Tim Fleming is a board member of the Council of Insurance Agents and Brokers, visit the CIAB website for more information) to ensure we are fully informed of potential issues. Additionally, we are tracking multiple ratings agencies as well as trade reports. Detailed industry and carrier information, along with our own observations, is now on our Web site at www.rjfagencies.com/IndustryUpdates. This section will be updated often, so check back regularly for the most current news.

We recognize that these are difficult times for many. We will always seek to provide extremely competitive programs and focus on ways to help you manage both risk and cost at the same time. Regardless of the economic climate, RJF remains committed to aligning quality insurers to every client’s specific needs.

Please contact any member of your service team or me at any time if you have questions.

Sincerely,

Bill Jeatran, CEO

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