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Insurance is cyclical in nature, meaning that there are hard markets and there are soft markets. Insurance companies must make a profit, and hopefully earn investment income off of the premiums received. There may be years where there are fewer losses than other years, but companies must make enough money to not only cover the losses in the current year, but have enough money set aside in reserve to cover future losses. They use actuarial methods to try and predict future losses based on past experience but that does not always hold true. And in recent years, there have been a number of unprecedented catastrophic losses that have negatively affected the capital held in reserve by insurers and reinsurers. Thus, for many lines of business, we are currently in a hard market.

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