The Crash of 2008 and the Specialty Insurance Segment

This article caught my eye:

We are beginning to hear speculation, and some evidence, that the current financial crisis could spread beyond AIG and impact the insurance industry more broadly, including the specialty lines insurance segment.  Along with the rest of the insurance industry, the specialty lines insurance market has been soft (highly competitive).  The key questions (concerns) for our business are whether the financial crisis will have a broad and serious impact on the specialty insurance industry, and whether the impact will be significant enough to cause a serious capacity reduction and the pricing increases that go with it.

Financial challenges in the insurance business have spread beyond AIG (see our prior post, & here & here).  Recently the Hartford needed a $2.5 billion investment (see here), and XL announced significant investment losses (see here).

I’m not sure that the picture for specialty lines insurance is quite as doom-and-gloom as the article would suggest.

Granted, I’m writing from a back-office, ivory tower perspective, but I am aware that there are several specialty writers out in the market that have conservative, boring investment portfolios.  True, they haven’t necessarily been able to post as splashy returns as some of the carriers mentioned above, and their pricing hasn’t been as aggressive, or their underwriting as flexible…but conservatism is not a bad idea when dealing with some segments of the market.

Assuming stability is restored…which it will be, sooner or later…the market for specialty insurance will be there.  Specialty markets are far too much fun for insurers to not want to play there.