I.I.I.: Sees A Solid Year Ahead For P-C Insurers

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NU Online News Service, Dec. 16, 2:44 p.m.EST?The financial declines which property-casualtyinsurers endured for five years came to an end in 2003, and 2004should be another solid year for them, the Insurance InformationInstitute said.[@@]

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According to the New York-based group's annual survey of WallStreet stock analysts and industry professionals, the p-cindustry's premium growth, while decelerating, is expected toremain relatively strong next year.

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The average forecast in the survey, I.I.I. noted, sees netwritten premiums rising 8.1 percent in 2004, thanks to increasedprices as well as higher demands as the overall economic recoverycontinues to gather steam.

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This premium growth, I.I.I. pointed out, is high by recenthistorical standards, even though it represents a deceleration fromthe 10.8 percent average gain estimated for 2003 and the 14.6 jumpreported in 2002.

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The survey also predicted that the industry's return on equityis likely to reach double digits for the first time since 1997,thanks to improving underwriting performances as well as the morefriendly investment environment, which should allow more capitalgains and higher investment yields on bond portfolios.

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As underwriting results continue to improve, along with higherinvestment incomes, the industry's combined ratio is expected tocontinue its downward march, the survey said. I.I.I. said thecombined ratio for 2004 is projected to be 100.7 percent--assumingno major insured losses from terrorism as well as "normal"catastrophe activity--compared to an estimated 101.7 percent forthe current year.

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But despite the survey's rosy forecast for 2004, I.I.I. saidmany things could still go wrong. Insurers, the Institutecautioned, still have to deal with elements creating the "perfectstorm" that previously combined to hurt insurers, including risingjury awards, surging asbestos claims, soaring medical inflation,high catastrophe losses and the loss of critical capacity.

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Furthermore, there is also the risk of losing pricing andunderwriting discipline, I.I.I. observed.

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Yet despite lingering storm clouds, "Goldilocks might well pay avisit to the p-c insurance industry in 2004," according to thesurvey. The survey participants predicted that pricing will"neither be too high nor too low." Also, business and consumerdemand for insurance will generally be met with relatively fewareas of acute shortage, and interest rates will rise, but at agradual pace, so that bond prices don't fall too much.

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Furthermore, the expanding economy ensures that exposure growthwill accelerate, so that insurers will have "some opportunity tocompete for new business rather than resort to destructive pricewars with each other for the same old business," according toI.I.I.

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