Winners and Losers Coming Out of the Hard Market
With year-end 2025 data now mostly available, it’s a good time to review the results. The market has turned soft in many lines and many` geographic areas. So who are the winners and losers from the hard market?
Major Losers: Consumers
Consumers are paying hugely higher premiums for materially less coverage. It’s like buying toothpaste. The package looks the same size, but the price is higher and there is much less toothpaste in the tube. Property deductibles are not affordable for many and most likely have no idea what a 2% wind/hail deductible is in dollar terms.
Partial Losers: Public Brokers
Source: A.M Best
This chart shows that the publicly traded brokers are continually growing more slowly than the market. In the last ten years, their organic growth is, cumulatively, 66%. The industry’s growth is 89%. I do not know who is taking their business, but their retention rate and/or true new same-store sales are sucking wind.
Maybe this is one reason their stock prices have decreased over the last twelve months. The hard market made it look like their organic growth was strong, but it was not. Business is going out the back door.
Partial Losers: Some Carriers
It is difficult to believe that companies can leave a hard market smaller than when they entered, but several carriers accomplished that dubious feat. When rates are increasing by 10+% annually and your carrier is shrinking by 4% annually, the company is quickly losing market share and importance. Adjusted for rates, one carrier that was a top ten carrier ten years ago is now approximately 50% smaller than it would have been if it had simply grown as much as rates increased.
Of course, there might be more to this story. A hard market often reveals carrier strengths akin to the old phrase, “When the tide goes out, you see who has been swimming naked.” A carrier that does not have enough surplus and/or enough quality of surplus cannot grow. Responsible insurance company management requires generating enough profit to grow surplus enough to afford growth. Growth is afforded by adequate surplus growth, not profits alone. This means if a carrier mismanages their investment portfolio, pays too much in dividends to shareholders, parent companies, or, on occasion, policyholders, or pays executives too much, or if it has maybe inflated certain investments or under reserved, they are less likely to possess adequate surplus to support growth even though they are profitable. Maybe a few of these carriers really did not have the surplus required to grow.
Winner: Progressive
Progressive is now the second largest carrier by premium. It is one of the most profitable. And its model enables it to carry less surplus than normal, which is a huge competitive advantage. Even if they had started from scratch just five years ago, they would be the 7th largest carrier, larger than Hartford, Farmers, Auto-Owners, and so forth.
Winners: Reinsurers backing MGA/DUAs
When carriers stopped buying nearly as much reinsurance in 2018, Reinsurers began backing alternatives to their regular carrier clients. These markets have filled gaps left by the regular market. They are faster, usually non-admitted, and more innovative. Their growth has been explosive.
There is materially more risk for multiple reasons, including the old basic one: Better be careful to whom you give the pen!
Winners: New Agencies
For all the acquisitions, consolidation is not happening. Roughly the same number of agencies exist today as there were five years ago, per the IIABA. Many of the new agencies are refugees from acquisitions, providing more evidence of why acquirers’ retention rates may be materially worse than reported. Many of these new agency owners who have contacted me are far more technically competent on coverages, risk management, and markets. They are much better at addressing their customers’ needs.
They learned some sophistication at the shops that acquired them, but grew very frustrated with poor management, limited resources, and pressure. This is great for them and their clients.
Hard markets can both shake out and hide poor performers. This softer market will reveal those posing as successful in the hard market. I hope the winners are ready to pounce.
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