P-C Profits Strong Despite Liability Claims Challenges

The U.S. property-casualty sector's profitability will remain strong and the current market cycle will reach its peak this year despite rising claims trends in liability lines, an industry expert predicted today.

Profitability for the p-c sector would have peaked last year if not for Florida hurricanes, but now "we expect to reach the profitability peak in 2005 assuming average catastrophe losses," said Thomas Holzheu, senior economist for Swiss Re Economic Research & Consulting, North America.

This high point will be attained despite some difficult claims trends in liability lines that remain challenging, Mr. Holzheu said.

The problem areas, he said, include: medical malpractice, directors and officers, errors and omissions coverage for certain industries, health care and nursing-home liabilities as well as liabilities for the farming industry.

"All these remain critical due to strong claims growth," Mr. Holzheu said. He offered his observations during Swiss Re's midyear economic and insurance teleconference.

The good news regarding p-c profitability, he said, is that charges related to reserve deficiencies are easing. Many legacy problems are being worked out in the sector, thanks to the strong underlying profitability of the business, he said.

Mr. Holzheu said that improved underwriting and investment results will fuel further earnings growth and that return-on-equity would stay at around 11 percent this year.

On pricing trends, he acknowledged a slowing development in the first half of 2005. Commercial lines are showing a slight decline, he said, while personal lines are still growing positively though moderate.

Industry experts from Swiss Re also offered views on the broader economic picture of the U.S. economy. In 2005, they said the U.S. economy is expected to post at least an average rate of growth, but there is a risk of recession from the surging oil price, said Kurt Karl, chief economist at Swiss Re Economic Research & Consulting, North America.

Mr. Karl said if the oil price hits $80 per barrel, it would likely trigger a recession in the country.