NU Online News Service, April 15, 12:51 p.m.EDT

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An investment bank analysis of the property-casualty marketfinds that the outlook for this year is improving modestly butdeclines can be expected in earnings per share.

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A report by Mark Dwelle, an analyst with RBC Capital Markets,said that with the exception of a few companies a deterioration ofthe p-c sector is anticipated.

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RBC in a statement said the lessening in performance mainlyreflects lower underwriting margins and reduced investmentincome.

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Despite a rebound from low levels in early March, RBC said p-cstock valuations still remain well below historical averages andthe bank is positive on group fundamentals. DJINP Insurance Indexhas risen more than 30 percent from March, it was noted.

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According to a summary of Mr. Dwelle's report:

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o Underwriting margins remain under pressure, and whileredundant reserve positions for most in the p-c group studied areanticipated, a lower pace of reserve releases along with a moreconservative stance on loss trends may weigh on margins.

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o Soft premiums are expected although the percentage declinesfor most primary insurers have narrowed in recent quarters. RBCforecasts premium declines for most in the group, finding companiesare still highly cautious on new business generation.

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o The recession effects are being felt by the industry. Althoughinsurance is considered a somewhat defensive industry, RBC findsthe duration and severity of the current recession is creating morechallenges for p-c insurers than during previous recessions. Nearterm, the bank's report finds the recession poses headwind to theinsurers' top lines as customers increase deductibles and buy lesscoverage, exposures on commercial accounts fall consistent withdeclining employee counts, and economically sensitive areas(construction, hospitality, retail) feel the hit from loweractivity.

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o A trend of gradual insurance rate increases is still intact,RBC said, with the expectation that the common theme will remainthat industry pricing is on a slow recovery trajectory with pricesturning positive on several insurance classes in recent months.Reinsurance said RBC continues to show good pricing visibility withgrowth in the mid-to-high single digits.

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o Investment portfolios will finally show some signs ofstabilization in the first quarter, although negative marks acrossmany of the company's investment portfolios (mortgage-backedsecurities, corporate bonds) are expected. The erosion in values,it is noted, was comparatively smaller relative to last quarter andwas somewhat offset by rising market values for treasury andgovernment securities.

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Mr. Dwelle is continuing to recommend investors stick withwell-established names that are leveraged to improving pricingprospects and the flight-to-quality trend, including Chubb,PartnerRe, RenaissanceRe and W.R. Berkley.

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