NU Online News Service

A survey of Wall Street analysts released by the InsuranceInformation Institute today predicts that property-casualtyinsurers in 2006 will see an average combined ratio of 98, butactual results will likely be better, said an I.I.I. executive.

Robert Hartwig, I.I.I. senior vice president and chiefeconomist, told NU Online News Service that, conversely, the earlybird predictions of 12 analysts, that market prices will hardenwith overall premium growth of 4.7 percent, will likely be trimmedback.

Explaining why the "Early Bird Forecast" of a combined ratio twopoints better than break-even for 2006 is ripe for downwardrevision, Mr. Hartwig noted that the analysts were surveyed inmid-December, before nine-month results for 2005 were released bythe Insurance Services Office.

The ISO results published on Dec. 27 indicated a nine-month 2005combined ratio of 100--an actual result that suggests to Mr.Hartwig that the analysts' combined ratio prediction for full-year2005--at 105.3, on average--is well off the mark.

"I think what every analyst underestimated is the resiliency ofthe industry in the face of large-scale disaster." In particular,he said, "there may be more reinsurance out there than they [theanalysts] realize."

For 2006, while the analysts are likely expecting a lower levelof catastrophe losses with their overall combined ratio predictionsof 98, they may still have overestimated the impact of evenmoderate-scale disasters, Mr. Hartwig said.

"Very substantial amounts of the losses" are reinsured by firmsin London, Switzerland and Germany, taking them off the bottomlines of U.S. companies, he said.

Mr. Hartwig said he thought the latest analysts' predictionsregarding average premium growth will prove to be "overblown." Hebased this on the fact that the latest data brings into questiontheir forecasts indicating average growth of 2.5 percent for2005.

Noting that actual results published by ISO through nine monthsshowed net premiums fell 0.5 percent (or rose only 1.3 percent if asingle distorting transaction between American Re and parent Munichis excluded), he said the analysts' premium expectations for2006--averaging 4.7 percent--will likely "be ratcheted down."

The early views that the impact of Katrina and other stormswould be "to prop up casualty market pricing, I think have beenwrong from day one. And I think I'm being proved right onthat."

"My view is that the increases in price will be very limited inscale [and] scope," with the exception of commercial andresidential property risks in the Southeastern Gulf andcorresponding reinsurance.

Mr. Hartwig noted I.I.I. is now in the process of resurveyinganalysts, as it does every year, for a "Groundhog Forecast" due outin early February. While there historically has been littledifference between the Groundhog and Early Bird survey results,this time Mr. Hartwig expects nearly all of the analysts to changeall of their forecasts.

But a few analysts already did "pick up on the resiliency issue"with lower combined ratio forecasts for 2006, he said.

In fact, the range of combined ratio predictions for 2006extends from a 94 from Raymond James to 100.3 by Conning &Company. A wider range of predictions for 2005 has both these firmscloser to the 105.3 average (Raymond James at 104.1 and Conning at103.3), while Firemark Investments came in with the lowest 2005prediction of 100.2 (and 97.3 for 2006).