The property-casualty insurance industry is in strong financial condition, and it should be able to withstand the current drop in prices and a forecast decline in premium growth, according to a research firm report.

Hartford-based Conning Research, in its latest “Property-Casualty Industry Forecast,” said the pricing outlook for the next three years, through 2010, is generally soft for the industry as a whole.

Conning’s report projects a decline in premiums of 0.5 percent for 2008, compared with growth of 0.2 percent for 2007. Premium growth will be 2 percent in 2009, and 3.4 percent in 2010, the firm forecast.

“We project continued deterioration in underwriting margins and implied return on equity,” said Conning analyst Clint Harris.

However, Stephan Christiansen, Conning’s director of research, said that looking beyond 2008, “our forecast contains a somewhat more optimistic view of 2009 and 2010 because we anticipate a modest rebound in the economy and also a moderating competitive environment.

“We project a return to net premium rate increases beginning in some lines as early as 2009. In fact, we are already beginning to observe some insurers taking corrective actions in their markets because of poor results,” he concluded in a statement.

Conning said the largest year-over-year increase in combined ratio is forecast for 2008 at 100.5–up five points from 95.5 last year.

While this reflects a return to normal catastrophe losses, much of this deterioration is self-inflicted, as premium prices and premium rate adequacy continue to fall, Conning said.

The firm predicted a 7.7 percent return on equity for the industry this year and 7.3 percent for 2009.

According to the report, researchers are somewhat optimistic about industry results for 2009 and 2010, projecting “premium rate increases beginning in some lines.” Specifically mentioned is personal auto. Medical malpractice was foreseen as continuing to experience “record profitability.”

Conning said its study–”Property-Casualty Forecast & Analysis”–identifies the key drivers of the industry and forecasts industry growth and performance for 2007-2010.

For more information, see http://www.conningresearch.com/.