The year ahead is likely to be another profitable one forproperty-casualty insurance as a whole–but the big question is howlong the party will last, given the industry's competitive driveand the ever-present threat of a mega-catastrophe, analysts at theannual Joint Industry Forum here agreed.

Even as one prominent investment house predicted a p-c industry2006 return on equity of 15 percent–quite high by historicstandards–analysts here were also worried whether pricing andbottom-line results would head south if competition heats up.

Despite record catastrophe losses, the industry posted solidgains last year and even a possible underwriting profit for onlythe second time in over 25 years, the analysts noted. However,concerns were voiced over how long pricing discipline wouldprevail, or whether it would take another Katrina-like event thisyear to keep the lid on temptations to price aggressively forrevenue and marketshare growth at the expense of profitability.

In 2006, “executives may just say we are making money, so whydon't we just keep doing what we are doing?” suggested BrianSullivan, editor of Dana Point, Calif.-based Risk Information Inc.,during an analyst panel at the forum, co-sponsored by 13 p-c tradegroups, led by the Insurance Information Institute. However, hewarned, he does not discount the possibility that “someone willcome up with a strategy that calls for cutting pricing to gainmarketshare.”

Indeed, some troubles lurk beneath the current numbers, observedV.J. Dowling, managing director of Farmington, Conn.-based Dowling& Partners Securities. “Homeowners is not as profitable aseveryone thought it was,” he noted, “and auto rates are not goingup while costs are, but the fact is we are having fewer accidentseach year and that can't go on forever.”

Mark Puccia, chief quality officer for insurance rating criteriaat Standard & Poor's in New York, said he doesn't expect 2006to match last year's performance, which in turn was based on a“wonderful claims experience.” On the positive side, he added,“there is an awful lot of information out there” to fine-tuneunderwriting and pricing decisions, “and hopefully that will shoreup the results this year.”

All agreed that the Florida catastrophe market is virtuallydysfunctional. “There is no rational reason why any company wouldput any capital in that state,” according to Mr. Sullivan. However,until the ability to purchase a home is threatened by a severeinsurance capacity shortage, no drastic corrective measures will betaken, he added.

S&P's Mr. Puccia warned not to look to the federalgovernment for solutions, contending that “the degree of distrustfor the industry in Washington cannot be underestimated.”

Such distrust–which forum panelists suggested had hamperedefforts to extend the Terrorism Risk Insurance Act last month–willmake it that much harder to craft any long-term program to betterdeal with catastrophic risks, forum speakers said.

The heads of Allstate, State Farm and Nationwide came out invarying degrees during a CEO panel here in favor of a proposal toprovide federal and state backing for natural catastrophe exposuressimilar to the federal reinsurance mechanism provided for terrorismrisks under TRIA.

Allstate's chairman, president and CEO, Edward Liddy, whosecompany has been busily lobbying for such a program over the pastseveral months, proved the most enthusiastic advocate for theproposal.

The industry, however, remains divided on the issue, with giantproperty-casualty insurers such as Liberty Mutual coming outagainst it, along with opposition from the American InsuranceAssociation and the National Association of Mutual InsuranceCompanies.

Mr. Liddy's colleagues are not optimistic that the effort willsucceed. A poll of those attending the forum found only 3 percentbelieving it has a chance of being passed by Congress this year. “Ivoted three times,” joked Mr. Liddy.

The Allstate CEO said the inability of any company to accumulatesufficient profits in good times due to regulatory constraints topay for bad times when major disasters strike means governmentinvolvement is required.

State Farm's chairman and CEO, Edward Rust, as well asNationwide CEO W.G. Jurgensen also expressed general support forthe concept. However, not one executive at the forum backed aproposed all-perils policy, including flood exposures, which ispart of the current National Association of InsuranceCommissioners' proposal under consideration.

The panelists also agreed the industry will prevail in lawsuitsby those in Gulf States who contend that hurricane-related waterdamage is covered despite flood exclusions in standard homeownerpolicies.

Mr. Jurgensen said that as an experiment, he took the front pageof a standard homeowners' insurance contract to sixth- andseventh-graders, who all understood the difference between wind andflood damage. “So now my general counsel and I are trying to figureout how we can parade them through a Mississippi courtroom,” hesaid.

Other storm-related topics included the huge stress the stormsplaced on claims operations and the need for enlarging currentinsurer adjuster staffs so those sent into stressful catastrophesites can have their tours of duty shortened.

“We have grossly underestimated the emotional toll these stormshave wreaked upon claims adjusters,” Mr. Jurgensen said, noting insome cases they have been threatened with violence from angryclaimants. Allstate's Mr. Liddy added that many adjusters from theNew Orleans area were “heroic” in that they continued to settle theclaims of others, “working without days off or a true home afterlosing everything they owned in the same hurricane.”