Insurance analysts believe shifts in capital will result in overall premium growth in 2006, although their predictions are more cautious than they were late last year, according to the Insurance Information Institute's annual “Groundhog Forecast.”

The analysts surveyed believe premiums overall will rise 3.8 percent in 2006, up from an estimated 1 percent in 2005, noted Robert P. Hartwig, senior vice president and chief economist for the institute, in his report on the survey. The groundhogs' prediction is less bullish than the 4.7 percent estimate cited in a December survey of analysts by the industry-sponsored institute.

The increase will come about, according to Mr. Hartwig, because capital will be moved from the soft casualty market, creating a slight capacity crunch, and moved to the 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 also see some improvement. The 2005 ratio is estimated to come in at 101.8, after ending up in the black at 98.3 in 2004. The 2006 projection stands at an optimistic 97.7.

However, noted Mr. Hartwig, the industry's return on equity remains low compared to Fortune 500 company returns. The 2004 98.3 ratio 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,” said Mr. Hartwig, adding that insurers will need to generate greater returns from underwriting if they are to achieve improved returns.

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

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

Mr. Hartwig said the industry should see fewer “screaming headlines” over investigations concerning improper broker compensation, but might have to deal with its most high-profile prosecutor becoming governor of New York if the candidacy of Attorney General Eliot Spitzer is successful.

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