NU Online News Service, Jan.15, 3:27 p.m.EST

Publicly traded property and casualty insurers should reportgood earnings for the fourth quarter of 2009, but the 2010 outlook"remains dim," Keefe, Bruyette & Woods stock brokeragesaid.

The firm's earnings preview report said while the fourth quarterwill likely see insurers report a double-digit return on equity forthe year, ongoing price competition will mean declining premiumvolumes and loss ratio pressures.

For Bermuda and reinsurers, the report said a strong fourthquarter is expected with good combined ratios, while for brokers,"as top-line pressures continue to hurt the group," a mixed fourthquarter is expected.

KB&W said it is cutting estimates for a few insurancecompanies with northeastern exposure to wintry weather, whileraising estimates for the reinsurer/catastrophe-exposedcompanies.

Equity research analysts at the firm said top-line pressureswill likely continue and p&c insurer low- to mid-single-digittop-line declines are expected. KB&W said it expects insurers'investment income to rebound strongly versus the 2008 quarter andbook values to be up 2 percent to 3 percent, on average.

In 2010, besides reduced premium volume KB&W predictsinsurers' loss ratios worsening "as the result of a return tonormal weather after a benign 2009 and less reserve releases versus2009."

Expense ratios could rise, the company said, as volumes drop and"internal investments" are made. It expects lots of share buybackannouncements that will prove disappointing, noting that suchactivity was premature in 2005 and 2008.

The report put out by Cliff Gallant, KB&W chief financialanalyst, said, "While we are generally not enthusiastic about thesector, we see a few companies with solid track records and strongbalance sheets that appear positioned to benefit from marketplacedislocation."

KB&W maintains Outperform ratings on Allied World, AssuranceHoldings, Chubb Corp. and PartnerRe, and an Underperform rating onZenith National Insurance.

For the fourth quarter, the analysis anticipates overall ratedeclines in the low-single-digit range for most casualty lines ofbusiness. However, the rate declines are decelerating, and manymanagement teams expect rates to increase in 2010, saidKB&W.

The analysis noted that claim frequency trends continue to befavorable and non-catastrophe-related claims should be flat to downslightly overall. "Average claims severity continues to trend inthe mid- to upper-single-digit range, above overall inflation butwithin expectations for most p&c insurers."