Conning: Poor Investments Dim P-C Outlook

Conning: Poor Investments Dim P-C Outlook

NU Online News Service, June 3, 9:53 a.m. EDT?Despite rate increases, property-casualty insurers will not see any "dramatic improvement" in their financial results this year or in 2004, partly because of poor investment yields and potential reserve boosts, according to a Conning Research & Consulting Inc. study.

Michael Weinstein, Director of Research at New York-based Conning, said that benefits of rate increases have mostly been offset by the industry's declining investment income.

"With lower investment returns, insurers have no choice but to focus their efforts on reducing losses and other costs if they want to achieve sustainable returns on equity," he said. "There is also a continued rise in loss costs, driven primarily by medical-cost claims."

And although p-c insurance rates will generally continue to go up this year and in 2004, the increase will happen at a more moderate pace, Mr. Weinstein predicted.

Additionally, Conning also forecast that the p-c insurance industry's statutory returns on surplus will increase, "but only into the low single digits," as the industry strengthens its loss reserves and tries to shore up its capital base by issuing common stock and other issues that can be converted to common stock.

Mr. Weinstein noted that since 2000, p-c insurers, both in the United States and Bermuda, have raised some $21 billion and boosted their capital base this way.

"There is a continuing need for the industry to address under-reserving from prior periods," he told National Underwriter.

"It is becoming clear that the p-c industry is much more leveraged than most people had thought, and companies are raising substantial amounts of capital to take advantage of the more favorable pricing environment," said Mr. Weinstein.