Insurance analysts believe a limited amount of hard pricing in the marketplace is still possible, but less than was earlier expected, according to a report from an industry economist.

The survey of industry prognosticators, which foresees shifts of capital from the casualty sector's softening prices and more interest in the hardening property and reinsurance markets, was produced by Robert P. Hartwig, senior vice president and chief economist for the Insurance Information Institute.

I.I.I.'s annual Groundhog Forecast found analysts believe premium prices will rise 3.8 percent in 2006, up from an estimated 1 percent in 2005, writes Mr. Hartwig.

That figure is below the 4.7 percent estimate in a December survey from I.I.I. The increase will come about, said Mr. Hartwig, because capital will be moved from the soft casualty market, creating a slight capacity crunch, and moved to property and reinsurance markets where prices are on the rise in the wake of last year's hurricane season.

The industry's combined ratio should see some improvement. The 2005 ratio is estimated to come in at 101.8 percent, after hitting 98.3 percent in 2004. The 2006 projection stands at 97.7 percent.

However, said Mr. Hartwig, return on equity remains low compared to Fortune 500 company returns. The 2004 results of 98.3 percent produced 10.5 percent ROE, while the Fortune 500 returns hover around 13-to-14 percent.

"Considering the tremendous risk assumed by investors who back major insurance and reinsurance companies, these returns are woefully inadequate," Mr. Hartwig noted. Insurers will need to generate greater returns from underwriting if they are to achieve improved returns.

His report said the industry will remained burdened with catastrophe concerns through 2006, and the inability to obtain federal restrictions on civil litigation means additional legal costs. Industrial asbestos injury claims, he said, are also a major concern, with no solution in sight.

Terrorism insurers, though covered by a federal backstop plan through 2007, face increased trigger points for supports, and that could translate into losses for the industry equal to or greater than 9/11, he wrote.

Finally, Mr. Hartwig noted, the industry should see fewer "screaming headlines" over investigations concerning improper broker compensation.

However, he noted the industry may have to deal with its most high-profile prosecutor becoming governor of New York if the candidacy of New York Attorney General Eliot Spitzer is successful.

Special Reports /

Limited Hard Market Possible For '06

Related Stories

Recommended For You