Business Breakdowns
· Matt Reustle, Aaron Cohen
[00:00:00] S0: Just on the soft markets, is that typically tied to macro cycles? Is there something else that drives when you do have a slowdown? [00:00:00] S1: So it's funny because we've done a tremendous amount of work and sometimes soft markets have correlated with soft economic times. But it's not always the case. They're not perfectly correlated. What really drives them is insurance carriers' profitability. And the one most important thing to identify a potential hard or soft market is: forget about carriers' revenue, their profitability, their net income, cash flow. When carriers have positive cash flow, they're happy, they're generating returns. It's when they dip into negative cash flow area that you'll see the market harden because they got to push rate to drive returns. So cash flow is the number one predictor of a potential hard or soft market. And the insurance industry's profitability, yes, it's underpinned by the overall economy, but you could have two horrible storms. You could have an earthquake in California and a hurricane in Florida in the worst economy in the world and all of a sudden prices are going up and the insurance brokers are going to make more money because they get a percent of that premium. So there are risks that are independent from the broader global macro economy that would drive a hard and soft market.
· Matt Reustle, Aaron Cohen
[00:00:00] S0: Very interesting. The last thing that I wanted to touch on, you brought it up earlier, was it's a highly regulated industry. It seems like the impact for the brokers is mostly on the filing and whatnot. But in terms of regulation as either a risk or a potential catalyst and tailwind, are there any things out there that would directly impact the brokers from a regulatory standpoint that you're watching closely or there's a milestone that's upcoming that you would be looking out for? [00:00:00] S1: There's nothing on the horizon that's being discussed, whether at the state or federal level that people are worried about. You had the whole Spitzer situation back in pre-financial crisis that really shook this industry. But right now it's pretty well regulated. It works very well. And I think an advantage of being a slightly bigger broker is you have the ability to track the regulations and be able to grow by state because it's regulated by the state. So every state is different and you have the capital to be able to support having a regulatory team to just follow the regimes and understand what's going on. But there's nothing on the horizon that's material to this industry right now. [00:00:00] S0: Well Aaron, this has been a pleasure. Thank you for sharing all the knowledge, the history and some fun stories along the way. I appreciate you joining us. [00:00:00] S1: Matt, thank you for having me. It was a lot of fun.