Groundhogs See Bright Outlook For P-C Insurers

NU Online News Service, Feb.2, 2 :06 p.m.EST?Stock analysts and insurance professionals foreseemoderating rate increases and ongoing improvement in the combinedratio for the property-casualty insurance industry, a survey by theInsurance Information Institute found.[@@]

The Institute's findings, based on forecasts from individuals at10 major firms, are contained in the Institute's "GroundhogForecast for 2004."

The New York-based Institute said the average forecast calls fora 7.4 percent increase in net written premiums this year. Whilethis would not be as high as last year's 10.4 percent result, whenprice increases were higher, it does reflect increasing marketdemand, noted an analysis by Robert Hartwig, the Institute's seniorvice president and chief economist.

Mr. Hartwig wrote that return on equity for companies is likelyto increase above double digits for the first time since 1997 basedon better underwriting, capital gains and higher investment yieldsfrom insurers' large bond portfolio investments.

The groundhogs predicted that the combined ratio of losses andexpenses to premiums should improve to 100.3 compared with anestimated 101.4 for last year.

Mr. Hartwig noted that while the combined ratio continues toshow improvement, "the bottom line is that the industry will stillbe paying out roughly $1.01 for every $1 it takes in."

Examining the spate of insurer rating downgrades over the pastyear, Mr. Hartwig said "the industry overall does not appear tohave yet hit a ratings trough. Downgrades still far outnumberupgrades." However, "given the mature stage of the current cycle,upgrades should be the order of the day."

The Institute reported that results lately are far better thanrecent years, when the industry experienced its first-ever net lossof $6.5 billion and a combined ratio in 2001 of 115.7.

Companies queried for the forecast included A.G. Edwards,Prudential Securities, Fox-Pitt Kelton, Goldman Sachs, MerrillLynch, Standard & Poor's, Tillinghast, Gill& Roeser,Raymond James and the Insurance Services Office.

The complete groundhog forecast, with commentary by Mr. Hartwig,is available online at www.iii.org.