Conning: Poor Investments Dim P-C Outlook

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NU Online News Service, June 3, 9:53 a.m.EDT?Despite rate increases, property-casualty insurerswill not see any "dramatic improvement" in their financial resultsthis year or in 2004, partly because of poor investment yields andpotential reserve boosts, according to a Conning Research &Consulting Inc. study.

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Michael Weinstein, Director of Research at New York-basedConning, said that benefits of rate increases have mostly beenoffset by the industry's declining investment income.

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"With lower investment returns, insurers have no choice but tofocus their efforts on reducing losses and other costs if they wantto achieve sustainable returns on equity," he said. "There is alsoa continued rise in loss costs, driven primarily by medical-costclaims."

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And although p-c insurance rates will generally continue to goup this year and in 2004, the increase will happen at a moremoderate pace, Mr. Weinstein predicted.

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Additionally, Conning also forecast that the p-c insuranceindustry's statutory returns on surplus will increase, "but onlyinto the low single digits," as the industry strengthens its lossreserves and tries to shore up its capital base by issuing commonstock and other issues that can be converted to common stock.

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Mr. Weinstein noted that since 2000, p-c insurers, both in theUnited States and Bermuda, have raised some $21 billion and boostedtheir capital base this way.

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"There is a continuing need for the industry to addressunder-reserving from prior periods," he told NationalUnderwriter.

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"It is becoming clear that the p-c industry is much moreleveraged than most people had thought, and companies are raisingsubstantial amounts of capital to take advantage of the morefavorable pricing environment," said Mr. Weinstein.

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