NU Online News Service, Oct. 26, 2:44 p.m.EST

Many of the factors that need to be in place for a property andcasualty market turn are not—at least not to cause the type ofsharp turn toward a robust hard market, says economist RobertHartwig.

Hartwig, president of the Insurance Information Institute, saysfour criteria must be met for a market turn: sustained underwritinglosses, material decline in surplus and capacity, a tighteningreinsurance market and renewing underwriting and pricingdiscipline.

In past market hardening periods, all lines of insurance weredoing poorly and each contributed to rapid rises. That is not thecase this time, he says.

“For instance, private passenger auto is not doing poorly andthat is one-third of all premiums written,” Hartwig says. “Alllines are not contributing to an overall market turn. The overallmagnitude of any turn won't be as strong as in the past.”

Turns are segmented throughout the industry. Additionally,property-catastrophe losses typically do not affect the casualtymarkets.

But a noteworthy observation is the growth in commercial, withpositive rates seen at renewals instead of negative-to-flat.Workers' compensation is leading the way, as there appears to be a“return to rational pricing,” Hartwig says. Commercial property isalso seeing increases.

However, industry surplus hit a record $565 billion as of March31 (though it fell 1 percent in the second quarter) and anysustained period of underwriting loss is in any early stage.Underwriting losses remain modest and reserve releases keepreducing them, Hartwig says.

Inflation remains low and interest rates have weakened theindustry's investments, mostly conservative bonds. Though interestrates have been low for a couple of years, Hartwig says insurersprobably haven't priced that into rates.

Prior to the 1980s, insurance companies enjoyed multiple yearsof underwriting profits each decade. But since 1980, there havebeen just three years with underwriting profits—all in the2000s.

Hartwig says insurers need to “move toward an old-schoolmentality” of generating profits through underwriting.

“The management teams that did it then aren't around now, but itwas standard operating procedure. It can be done again, but itmeans telling regulators there is a shift—a new paradigm,” Hartwigsays.