I.I.I.: Sees A Solid Year Ahead For P-C Insurers

I.I.I.: Sees A Solid Year Ahead For P-C Insurers

NU Online News Service, Dec. 16, 2:44 p.m. EST?The financial declines which property-casualty insurers endured for five years came to an end in 2003, and 2004 should be another solid year for them, the Insurance Information Institute said.[@@]

According to the New York-based group's annual survey of Wall Street stock analysts and industry professionals, the p-c industry's premium growth, while decelerating, is expected to remain relatively strong next year.

The average forecast in the survey, I.I.I. noted, sees net written premiums rising 8.1 percent in 2004, thanks to increased prices as well as higher demands as the overall economic recovery continues to gather steam.

This premium growth, I.I.I. pointed out, is high by recent historical standards, even though it represents a deceleration from the 10.8 percent average gain estimated for 2003 and the 14.6 jump reported in 2002.

The survey also predicted that the industry's return on equity is likely to reach double digits for the first time since 1997, thanks to improving underwriting performances as well as the more friendly investment environment, which should allow more capital gains and higher investment yields on bond portfolios.

As underwriting results continue to improve, along with higher investment incomes, the industry's combined ratio is expected to continue its downward march, the survey said. I.I.I. said the combined ratio for 2004 is projected to be 100.7 percent--assuming no major insured losses from terrorism as well as "normal" catastrophe activity--compared to an estimated 101.7 percent for the current year.

But despite the survey's rosy forecast for 2004, I.I.I. said many things could still go wrong. Insurers, the Institute cautioned, still have to deal with elements creating the "perfect storm" that previously combined to hurt insurers, including rising jury awards, surging asbestos claims, soaring medical inflation, high catastrophe losses and the loss of critical capacity.

Furthermore, there is also the risk of losing pricing and underwriting discipline, I.I.I. observed.

Yet despite lingering storm clouds, "Goldilocks might well pay a visit to the p-c insurance industry in 2004," according to the survey. The survey participants predicted that pricing will "neither be too high nor too low." Also, business and consumer demand for insurance will generally be met with relatively few areas of acute shortage, and interest rates will rise, but at a gradual pace, so that bond prices don't fall too much.

Furthermore, the expanding economy ensures that exposure growth will accelerate, so that insurers will have "some opportunity to compete for new business rather than resort to destructive price wars with each other for the same old business," according to I.I.I.