Recently released nine-month financial data for the property-casualty industry does not bode well for the firm pricing some anticipate, said a leading industry analyst.
Bear Stearns senior P-C analyst David Small, in a note to investors, asserted that the rate adequacy in most lines, as indicated by the 5.2 percent increase in surplus, will make commercial buyers wary of insurer "woe is me" pleadings for dramatic rate hikes.
"Even with record cat losses in 2005, the industry is likely to post an underwriting profit for only the second time since 1978," Mr. Small said.
Earlier this week, the Insurance Services Office released data showing nine-month profits rose 4.4 percent to $28 billion along with the surplus increase.
"The release also highlighted that premium growth slowed to a level not seen since 1999–the trough of the last soft market," Mr. Small wrote. "This datum suggests to us that should pricing stabilize in 2006, it may be stabilizing at a lower level than previously thought, leading to lower expected profitability."
Investment income will continue to drive profits as the industry benefits from an accumulation of capital during the last hard market. "Continued Fed rate hikes in 2006 should further aid investment income and potentially decrease focus and desire on pushing rate increases," Mr. Small wrote.
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