Early Birds See Bright 2004 For Insurers
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 the industry, the Insurance Information Institutes annual "Early Bird" survey revealed last week.
The New York-based Institutes annual survey of Wall Street stock analysts and industry observers found that the p-c industrys premium growth, while decelerating, is expected to remain relatively strong next year.
The average forecast in the survey, the Institute noted, would see net written premiums rising 8.1 percent in 2004, thanks to increased prices as well as higher demand for coverage as the overall economic recovery continues to gather steam.
Projected premium growth for 2004 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 Institute pointed out.
Those responding to the survey also predicted that the industrys return on equity is likely to reach double digits for the first time since 1997, thanks to improving underwriting performance as well as the friendlier 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 income, the industrys combined ratio is expected to continue to fall, the survey found. The combined ratio for 2004 is projected to be 100.7assuming no major insured losses from terrorism as well as "normal" catastrophe activitycompared to an estimated 101.7 for the current year, the Institute noted.
But despite the surveys rosy forecast for 2004, the Institute 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, the Institute observed.
Yet despite lingering storm clouds, "Goldilocks might well pay a visit to the p-c insurance industry in 2004," according to the Institute. The survey participants predicted that pricing will "neither be too high nor too low." The Institute also found that 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 dont 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," the Institute said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.