Property and Casualty Insurance typically ebbs and flows with market conditions. Companies are often faced with the same circumstances at the same time. The weather, underwriting selection and pricing, and a company's financial investment portfolio contribute to profit or loss. Insurance companies earn most of their profits from reinvesting premiums collected from policies. If underwriters do a good job of writing business with adequate rates and investors do a good job of investing, companies profit. 

In the insurance industry, there are two market types, soft and hard markets. Soft market conditions include companies obtaining a consistent return on equity, making coverage readily available and premiums low. The financial markets are doing well, and underwriting results are at or above the target goal. Consumers reap the benefits in a soft market. However, the opposite is true for a hard market. 

Hard market conditions are when companies do not get the needed return on equity and there is limited coverage available. This results in higher premiums. Unfortunately, the stock market and weather conditions don't always cooperate, and when neither is doing well, it usually results in lost equity. The profit goals needed consistently miss the mark. It doesn't mean companies are necessarily losing money, but they are not earning the return on equity expected by shareholders. 

Reduced earnings usually stem from investment and catastrophic weather losses. Further, underwriting results tend to be poor. Like most businesses, insurance companies need to earn a profit, and if they are not making money, they will take the necessary actions to turn it around. Unfortunately, a hard market does not bode well for business owners. 

The insurance industry has not seen a hard market for many years but with 2020 being the most challenging year in a long time, including an increase in catastrophic losses and an uncertain financial market, we are beginning to see one rapidly developing.

The insurance market is difficult to navigate, so it's important to contact your insurance professional to discuss and work through your business's insurance needs regardless of market conditions. 

Please see the article "Expectations of Hard and Soft Markets" for more detail.