Insurer Mergers, Struggle For Capital Foreseen

By Mark E. Ruquet

NU Online News Service, Oct. 1, 4:02 p.m. EDT, NewYork?Travelers' chief operating officer said he seeschallenges ahead for insurers despite improved earnings for theindustry, and added that some carriers would remained "stressed"despite what he sees as a continued moderating market.

Doug Elliot, Travelers' COO, said despite the "best news" theindustry has heard in the last few years about its earnings,companies are still faced with challenges that include a strugglefor capital.

In response to questions, Mr. Elliot said he thought there wouldbe continued consolidation of insurance companies, adding, "I hopenot, but I think we will see more."

Despite the current "moderating cycle" the industry is in, andthe best earnings insurers have seen in the past couple of years,carriers are not seeing the yields on returns they have in thepast, he said.

Mr. Elliot's comments came today during a CEO forum held by theInsurance Brokers' Association of the State of New York in New YorkCity.

He said despite an industry combined ration of 100 percent,yields on returns for investment remain in the single digits, andthat means the industry is struggling to attract capital. Toattract investors, and receive yields on investments in the doubledigits, carriers will need to get ratios down "in the low90's."

He said in four of the last five years carriers have seendeclines in their investments, which is adding to pressures ontheir performance. He compared this to a 23-year period beginningin 1975, when companies saw gains in all but 2 years anddouble-digit yields with combined ratios at 100 percent.

"I am proud of the continued progress [we are making]," he said,"but if you are inside the corporate board rooms, the carriers areseeing some stress. Travelers hopes to be one of those whooutperforms others."