Leaders of the property-casualty industry are overwhelminglyconfident insurers will prevail on hurricane-related challenges tothe flood exclusion, but at least half are still looking over theirshoulders in expectation of additional fallout from regulatoryprobes.

Those were two of the key revelations in a poll taken at thesector's annual family reunion–the P-C Insurance Joint IndustryForum, bringing together company association officials and majorCEOs. Of the 100 industry top dogs responding:

o Only about half said “investigations into certain industrypractices by state attorneys general and insurance departments aremostly wrapped-up.”

Perhaps this is only because AIG and its former chairman,ex-industry titan Maurice Greenberg, have yet to conclude theirdispute with New York AG Eliot Spitzer over finite re deals toboost the carrier's balance sheet. Or are there other majorscandals on the horizon?

o Just over three-quarters said record catastrophe losses lastyear will not “provoke a hard market” in 2006.

Mark Puccia, chief quality officer for Insurance Rating Criteriaat Standard & Poor's, summed it up best during a forum panelwhen he said, “this is an industry that has a hard time withsuccess.” With net income up despite record hurricane lossesthrough three-quarters last year, he warned, there is still achance for the industry to “do something stupid.”

The survey found only 46 percent expect commercial linesprofitability to improve (excluding workers' comp, where onlyone-quarter are optimistic about a boost), with 79 percentpredicting a hike in the industry's combined ratio.

In personal lines, 56 percent expect an improvement inhomeowners profitability, but only 46 percent feel that way on themore problematic auto insurance line.

Part of the reason for the industry's pessimism aboutprofitability might be because 90 percent expect an “up year” inthe equity markets, perhaps rekindling fear of cash-flowunderwriting.

o Eighty percent said carriers will successfully defend floodexclusions against suits prompted by hurricane losses.

In a panel at the forum, State Farm's chairman and CEO, Ed RustJr., warned that should insurers lose, “the willingness of thecapital markets to invest in an industry where it is unclearwhether the rule of contract law prevails would be injeopardy.”

o Seventy-two percent “expect another bad year of catastrophes”in 2006–a totally understandable prediction after seeing six of the10 worst U.S. disasters in a 14-month period over the past twoyears. However, despite concerns about an increasingly volatileMother Nature, the industry doesn't expect much to change in how werespond, as one can see from the next item.

o Ninety-seven percent said Congress would not adopt a NationalCatastrophe Insurance Plan this year–disappointing news indeed forAllstate's chairman, president and CEO, Ed Liddy, who is a hugesupporter of such an initiative.

The general consensus was most insurers don't want Uncle Samimposing a solution that might hamper the private market–althoughfew voiced any such qualms about extending the federal backstopprovided by the Terrorism Risk Insurance Act. In fact, that was theBush administration's rationale for opposing TRIA in the firstplace.

o Eighty-two percent said the industry is not doing enough topromote disaster mitigation. One of the forum's 13 co-sponsors–theInstitute for Business & Home Safety–would certainly like tosee more effort and funding on the industry's part for this commonsense cause.

The bottom line is that like any good risk manager, the industryshould hope for the best but be prepared for the worst in 2006.