Property-casualty insurers' investment income should be up in2008, but pricing for all lines and reinsurance should be down,according to a recent analysis by a leading investment firm.

The report, with estimates for 2008 and 2009 by New York-basedMerrill Lynch, states that despite falling prices, the firm is “notexpecting an irrational price war to emerge and price declinesshould stay in the single digits for most lines of business.”

For brokers, Merrill Lynch said the pricing outlook means theirrevenues will remain under pressure through 2009 with organicgrowth in the low- to mid-single digits with “some improvement inoperating margins.”

According to the report there will be a deterioration ofaccident year loss ratios in 2008 and 2009, based on pricecompetition over the next three years.

Merrill Lynch said that premium growth for the 33 tradedcompanies it follows–excluding the startup Darwin ProfessionalUnderwriters–on average is expected to be 5.5 percent in 2008 and4.8 percent in 2009.

Average investment income growth in 2008, excluding Darwin,should be near 9 percent and 8.2 percent in 2009, the reportsaid.

Average earnings per share growth rates forecast by the firm are4 percent in 2008 and 5 percent in 2009.

Merrill Lynch expects return on equity for the insurers todeteriorate in 2008, but noted that “average estimated ROE of 14.6percent is still historically healthy as is our 2009 estimate of13.7 percent.” Returns will move lower beyond 2009, according tothe report.

Over the next year, Merrill Lynch said it is expecting to see atug of war between property-casualty insurers slowing top linegrowth and “deteriorating margins which tend to depress valuationsand strong growth in book values which tend to supportvaluations.”

According to the firm's analysis, commercial lines prices willbe flat to down in most business lines through 2008, while moderatedeclines are expected in 2009.

Reinsurance pricing, the report said, should move lower over thenext three years, and personal lines prices should go lower in 2007and 2008 “with some stability in 2009.”