Underwriting Cycle Heads South Again Following a three-year gentle recovery from the 1990s soft market for insurance, analysts observed that prices began to decline again in 2005 and forecasted a continuation in 2006. This result is at odds with still weak underwriting results, which indicate that current prices are not adequate. Analysts believe the price decline is being driven by too much capacity chasing too little business.

Implications for p-c insurers:

For the industry as a whole, we believe the results are predictable: unacceptable underwriting results for several years, and an accelerated shakeout of some of the financially weaker or less capably managed insurers. Included in the shakeout will be recent entrants that had been attracted to the potential profits of the early 2000s, now discouraged by weakening profit margins.

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