In 2007, two themes will prevail in the property/casualty insurance industry: the need for better capital management and a drive for innovation, according to Ernst & Young Global Insurance Center.

“The past four years have been marked by unrelenting regulatory scrutiny, unparalleled catastrophic losses and an incredibly vibrant hard market,” said Pete Porrino of Ernst & Young Global Insurance Center. “Together these factors have created an unusual window of opportunity, attracting new competitors to the market that have a different view of risk and desire to innovate.”

A recently released Ernst & Young report states that five key issues will shape 2007 for the property/casualty insurance market:

Maintaining and managing profitability: Profitability can be managed by looking at three key areas: the difference between premium and loss trends, cost control and capital management. Forward-thinking companies are aggressively managing quality and profitability across product lines, deploying capital judiciously and tackling rising costs.

Shifting from growth to innovation: A declining market is emerging and creating an opportunity for the innovative deployment of capital and market differentiation. The Bermuda sector foreshadows the innovation trend with new market entrants establishing non-traditional organizations, launching competitive new products, and pursuing underserved market segments. Opportunities remain for incumbents in the areas of underwriting, catastrophe exposure management, capital management, and expense management.

Lingering post-2005 and 2006 catastrophe market issues: Policyholders in coastal communities are still struggling with claim disputes, limited availability of products, and daunting price increases. In the midst of uncertainty and regulatory intervention, companies will need to manage the “risks” of recovery.

Changes in the reinsurance market: Reinsurance will be a particularly innovative market in 2007 that will push the limits on the use of advanced analytics at the transaction level as well as in the capital allocation process. The profitability of the 2006 property cat book will be a particular object of interest. Hedge funds, having entered the market, will make it more dynamic.

Risk and Control convergence: In an increasingly complex regulatory and reporting environment driven, in part, by Sarbanes Oxley and the impending Solvency II framework, leading insurers are moving toward a convergence of risk management activities to better achieve well-controlled and transparent management of risk and capital on a cost effective basis.

Special Reports /

Ernst & Young Issues 2007 US Industry Outlook for P&C Industry

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