P-C Insurance Execs Expect Probes To Grow

NU Online News Service, Jan. 14, 11:16 a.m. EST?A survey of top insurance executives has found they expect that investigations into insurance industry practices by state attorneys generals and insurance departments will continue expanding this year.[@@]

The poll was conducted by the Insurance Information Institute at its ninth annual Property/Casualty Insurance Joint Industry Forum Tuesday in New York.

I.I.I. said 92 percent of executives in the property-casualty industry are convinced investigations will expand, and 67 percent of respondents thought that most companies will be able to settle charges against them this year.

The survey found the group split as to whether the industry’s financial performance would continue to improve in the year ahead.

Fifty-seven percent of survey respondents expect 2005 to be more profitable than last year, as measured by the combined ratio, a percentage of each premium dollar a p-c insurer spends on claims and expenses. The combined ratio for 2004 is estimated at 97.

Asked if insurers thought the p-c commercial market would soften significantly in 2005, 53 percent thought it would not. Sixty-three percent of insurers thought the personal lines market would not soften.

Looking at lines of insurance, fifty-five percent of respondents do not expect auto insurance to be more profitable in 2005.

Fifty-three percent of respondents felt the homeowners line would be more profitable than last year and 96 percent expect interest rates to rise in 2005.

Robert Hartwig, senior vice president and I.I.I. chief economist, said, “The historically low interest rate phenomenon is over. Market forces and the Federal Reserve are jointly forcing rates upward. If rate increases occur gradually, then this will ultimately increase insurer earnings on their investment portfolios.”

The poll found 80 percent of industry leaders are looking for another up year in the equity markets. “This will bode well for industry investment returns,” said Mr. Hartwig.

Sixty-five percent of respondents said they expect consolidation among insurers and reinsurers. In addition, 57 percent of insurers do not believe the number of rating agency upgrades will outpace downgrades in 2005.

Fifty-one percent of respondents said they expect Congress to pass and President Bush to sign meaningful class action reform legislation in 2005.

The survey found insurers remained pessimistic when it came to workers’ compensation. Seventy-seven percent of respondents thought there would be no improvement in the workers’ compensation market.

Sixty percent of those polled expect no overall improvement in commercial lines, excluding workers’ comp. But, 65 percent of respondents felt commercial insurers are still disciplined in their underwriting.

Mr. Hartwig said, “Hard market conditions moderated substantially in 2004. Rates of return in the property-casualty insurance industry, while improving, are still only in the 10 percent range?well below the 13-to-15 percent typical of Fortune 500 companies.”

With regard to the Terrorism Risk Insurance Act of 2002, 53 percent of survey respondents do not believe Congress will act to extend the program in 2005.

Participants at the meeting included nearly 250 representatives from property and casualty insurance and reinsurance companies and organizations. Of these, roughly 40 percent responded to the survey.

Full poll results and photos of the session are online at http://www.iii.org/media/met/2005jif/