NU Online News Service

The property/casualty insurance industry is expected to see anunderwriting loss this year, with no let-up in the soft marketthrough 2010 barring a substantial market shift, according to FitchRatings.

The findings were in Fitch's "Review and Outlook 2009-2010, U.S.Property/Casualty Insurance." The report said Fitch projects thep&c industry will come in with a combined ratio of 101 thisyear and an accident-year combined ratio estimated at 103.

Fitch continues to give the industry a negative rating, despiteimprovements in the industry's investment portfolios and the lackof severe catastrophe losses.

Julie Burke, managing director and head of North AmericanInsurance Ratings, said during a conference call today that lastyear's move to negative reflected the onset of the economic crisisand its impact on the industry.

She said 45 percent of insurers and reinsurers Fitch rates havebeen downgraded and the majority of the insurance groups Fitchrates are either negative or on rating watch.

Moving the industry back to stable, she said, would requireconfidence that the financial crisis has past and that there is nonew impact to insurers earnings. She said this analysis impliesthat some insurers' ratings will need to move to negative before anoverall stable rating is given.

James B. Auden, managing director of insurance for the p&csector, said the industry is solidly entrenched in a soft marketcycle and that this could be a prolonged cycle, but it may not beas severe as past cycles.

He said Fitch projects that for 2010 the industry will see acombined ratio of 104, with modest gains in net income. Mr. Audennoted that in order for the industry to return to underwritingprofitability it will need to record a combined ratio of 95.

When asked by National Underwriter about a widelyreported analyst's assessment that American International Group hasan $11 billion reserve deficit, Auden said that while he has notseen the report, he does believe AIG has suffered a lot ofunfavorable developments. However, because of the governmentbacking of AIG, Fitch is not concerned any deficit will have animpact.

Burke noted that as the company moves back into the privatemarket, however, a reserve deficit could have a negative impact onthe ratings.

Regarding the reserve picture of the industry as a whole, Audensaid insurers are in a strong position thanks to the hard market of2003 through 2006. However, as the soft market plays out, reserveswould be scrutinized more closely.

"They are adequate now, but we are watching," he said.

As for the current soft market, Auden said he believes it willcontinue through 2010 as capacity remains strong and competitionintense. A severe market dislocation, such as severe catastrophe,withdrawal or merger, could profoundly change the market direction,but he said he does not see that happening in the near term.