As investors and insurers digest this year's first wave of earnings reports, conference calls and financial supplements, it seems appropriate to pause and ask: What have we learned? Here are four takeaways:

1. Primary insurer pricing power may be slow to return.

Most primary insurers reporting Q1 earnings produced ROEs (returns on equity) ranging from the high-single to low-double digits. These certainly aren't great numbers, but neither are they terrible considering the low-interest-rate environment and multiple years of declining prices.

Therein lies a double-edged sword for insurers: Returns are generally too low to excite investors, but they are too high to act as a catalyst for a broad-based change in pricing. Absent a credible threat from inflationary pressures or other visible cost-of-goods-sold measures, such as rising reinsurance costs, most policyholders seem likely to resist attempts to materially increase insurance rates.

Perhaps, instead of trumpeting their higher, often-times double-digit calendar-year ROEs, insurers' longer-term interest would be better served by issuing earnings reports with headlines such as: “ABC Insurance Co. Reports a 7% Accident Year 2011 ROE; Company Fails To Earn Its Cost Of Capital.”

Headlines like this might cause some industry observers to scratch their heads, but the astute reader would realize that prices in the aggregate cannot remain at current levels forever. (Editor's Note: Accident-year ROEs do not benefit from prior-year reserve releases that push reported calendar-year ROEs to higher levels.)

2. Reinsurance and primary worlds temporarily disconnect.

Reinsurers had their clocks cleaned in Q1 2011, with many expected to report 5-10 percent (or greater) declines in book value from the beginning of the year. With low operating leverage, low interest rates and now massive underwriting losses, the catalyst for change has arrived. Or has it?

While declines were substantial and unexpected—since Q1 catastrophes were highly unusual, particularly in combination—no one event was unimaginable. Moreover, unless or until the string of catastrophes moves from an earnings event to meaningfully affect year-end capital, reinsurers' pricing power may not gain traction.

Importantly, primary insurers are not without options. Retentions can be raised and increasingly liquid alternative reinsurance structures can be tapped (e.g., catastrophe bonds). This is not to say prices shouldn't or won't rise, but the magnitude and the pace of change could disappoint enthusiastic investors.

3. Audit premiums pass an inflection point. Does it matter?

Early indications suggest that Q1 2011 will continue the nascent trend of insurers reporting positive audit premiums. Cautious businesses have learned to report flat-to-down estimated exposures (sales, autos, payrolls, etc.) although the gradual economic recovery is producing, on average, small but positive growth.

Here, too, investors would be well served to remember the “free lunch” expression (as in, “there is no…”) because while higher auditable exposures lead to upward revisions to premiums, the revisions also reveal that exposure to loss was higher during the policy period than was initially understood. If the business was properly priced, then more—or positive—audit premium could very well be a negative for insurers.

4. Busting the cycle myth.

If there were a “Myth-Busters” team to tackle the general perception that there is one, monolithic pricing cycle in which all participants are price-takers, Travelers—which reported a positive bump of 30 percent in net Q1 income (see chart)—would likely present itself as “Exhibit One” to the contrary. The company's Q1 statistics highlighted positive renewal-rate changes on two-thirds of its guaranteed-cost, commercial accounts.

With most companies still grumbling about the soft primary market, this begs the question: Can scale and superior analytical tools be combined with massive amounts of internal data and an active pricing and segmentation strategy to create a sustainable competitive advantage?

It seems clear how Travelers would respond, but the Myth-Busters team might require further evidence before declaring the cycle myth busted. Nevertheless, the competitive challenges facing insurers lacking either scale or true underwriting specialties are only going in one direction—higher!