The industry is set to enjoy its most profitable year since 1936, but the next two years are expected to see a slowdown in profit and premium growth, according to the Insurance Information Institute.
The I.I.I., in its annual Groundhog Day forecast, said the consensus of analysts surveyed by the organization is that insurers' profitability will continue through 2007 but has slowed, and the trend toward decreased profitability will continue through 2008.
They expect premium growth to be even more sluggish this year and next.
"A peak in industry profits but stalling premium growth is a clear reminder of the cyclical nature of the property-casualty business, and the fact that the industry's financial fortunes are influenced by a number of factors," I.I.I. said.
Net premium written is expected to grow at 1.8 percent, compared with 3.3 percent in 2006, primarily from soft market pressures. The only exception is catastrophe-prone hurricane risks where an 1.9 percent increase is expected, according to analysts.
The cycle is reminiscent of the late 1990s when the industry recorded growth of 2.9 percent in 1997 and 1.8 percent in 1998. These figures presaged some of "the worst years in the insurance industry's history," said I.I.I., with combined ratios deteriorating from 102 in 1997 to 116 in 2001.
However, the industry currently appears to be in better shape with ratios below 100 and expected to be at 96.6 this year and 98.6 next.
Catastrophe exposures remain the most pressing concern for insurers, I.I.I. continued. The worst year for catastrophe losses was 2005 with $61.2 billion in insured losses. Rapid coastal development is expected to translate into $40 billion losses on a regular basis, and many within the industry are bracing for a $100 billion loss year, I.I.I. warned.
Last year was comparatively mild at $8.8 billion, but it "is unlikely to recur in the future," I.I.I. said.
Aside from earnings and catastrophe pressures there is also the question of the insurability of terrorism in the United States.
While more risk was moved to insurers with the extension of the Terrorism Risk Insurance Act in 2005, individual company deductibles rose from 15 percent in direct earned premium to 17.5 percent in 2006 and 20 percent in 2007. Industry aggregate deductibles rose from $15 billion in 2005 to $27.5 billion in 2007. Many insurers have retentions greater than or equal to their actual 9/11 losses, the organization said.
While there is momentum going into this year and next for insurers, price pressure and slow growth "could erode underwriting performance and profitability in the year ahead," I.I.I. observed.
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