NEW YORK–Property-casualty insurance executives expect little action in Congress impacting their industry in 2007 and generally believe that higher profits aren't in the cards either.
Their views were expressed in a survey taken at the Property-Casualty Insurance Joint Industry Forum in New York yesterday.
A majority also predicted that the extension of the Terrorism Risk and Insurance Act would be the only one of three possible insurance-related plans to get the nod from Congress this year.
While 89 percent said TRIA would be extended, almost as many–87 percent–said a national catastrophe insurance plan is unlikely, and about two-thirds said they don't expect Congressional momentum to build for an optional federal charter.
As for profitability, more than three-quarters of the executives filling out survey forms said combined ratios would deteriorate in 2007.
Robert P. Hartwig, president of the New York-based Insurance Information Institute, one of 15 industry groups sponsoring the Joint Forum, noted that if the overall combined ratio rises in 2007, it will be moving up from an expected 2006 full-year figure in the low 90s–potentially the best in 60 years.
By line of business, 70 percent said personal auto profits would not improve, and 65 percent took a dim view of improvements in homeowners.
In commercial lines, workers' compensation had executives almost evenly split, with 53 percent expecting no profit improvement in 2007. Outside of workers' comp, 70 percent of the executives said commercial lines profits would not improve.
Jay Gelb, senior vice president and equity analyst for New York-based Lehman Brothers, noted that nine-month 2006 combined ratios for commercial lines were below 90 and in the low-90s for personal lines.
The stellar results "could attract increased competition," Mr. Gelb said, predicting that particularly in commercial lines, there could be "compression in pricing and underwriting results both in short-tailed and long-tailed lines in 2007.
Still, he said that overall profitability is sustainable. He explained that only part of the reason for the historic low combined ratio achieved in 2006 was attributable to a low level of catastrophe losses–a factor that he characterized as "an outlier."
"The other part–and what I think will be sustainable–is that the industry's balance sheet is in the best shape it's been in the last years," Mr. Gelb said, noting that announcements of prior-year unfavorable reserve developments have waned, while favorable loss developments for recent years have started to emerge.
Net overall earnings will probably remain flat, statutory surplus will grow, and returns-on-equity will compress a little, coming in at about 10-to-13 percent through 2008, said Mr. Gelb.
Mr. Hartwig said that the industry return on equity for 2006 is predicted to come in at roughly 14.5 percent–the best in 20 years.
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