Following 2006′s banner year, the property-casualty industry faces new challenges for the rest of the decade, according to a new Conning study.
Property-casualty insurers had a successful year in 2006 due to relatively light catastrophes. "Yet while 2007 is certainly off to a good start, the next two and a half years will likely be pressured by a return to more normal catastrophe activity," the report notes.
A combination of deteriorating premium rate adequacy, increasing loss severity and limited growth in investment yields will add to the pressure, according to the most recent forecast of the property-casualty industry by Conning Research and Consulting.
Stephan Christiansen, director of research at Conning Research & Consulting Inc., noted that the implied Generally Accepted Accounting Procedures return on equity was a "remarkable" 13.6 percent, with a positive cash flow of over $58 billion.
Policyholder surplus grew $64 billion, or 14.5 percent, to $506 billion; premium grew at a modest 4.4 percent. "That imbalance, along with a strong loss reserve position, is fueling the potential for a competitive market," Mr. Christiansen said.
The Conning Research study identifies the key drivers of the industry and forecasts industry growth and performance for 2006-2009.
"The key questions driving our forecast into 2009 are what catastrophes will do this year and next, and whether the market is on the precipice of a market cycle meltdown with price cuts that undermine premium and rate adequacy," said Mr. Christiansen.
Other concerns that could impact results are loss reserve strength, general U.S. economic growth, inflationary forces, investment returns and changes in the regulatory environments.
"Overall, we expect that the gap between superior-performing insurers and industry results is likely to increase as overall margins narrow during the coming soft market part of the insurance cycle," he added.
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