NU Online News Service, June 6, 2:13 p.m. EST
A hard market is not far away and this year the industry is expected to see its strongest growth since 2004, but the good news for insurers is tempered by consistent large underwriting losses, one industry economist says.
Speaking at the International Association of Claims Professionals in New York last week, Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute, told attendees that "the economic picture is brightening," and that the industry is "not too far away from reaching a hard market."
While he says no traditional hard market is expected to emerge in 2012, the industry will likely exceed A.M. Best's projection of 3.8 percent growth in 2012.
The industry's slow-but-sure climb to a hard market is marked by positive premium growth, but also by increased underwriting losses.
According to I.I.I., net written premiums grew 3.3 percent in 2011, a positive gain from 2010 when NWP was only up 0.9 percent.
However, underwriting losses in 2011 were $36.5 billion, the largest since 2001, says Weisbart. The average annual loss from 1980 to 2011 is $15.25 billion. Weisbart says the 2011 underwriting results, driven mainly by weather-related losses, are not a good sign for a hard market.
"Incurring consistent, large underwriting losses is not a sustainable business plan in the current investment environment," he says.
Despite weather-related losses impacting P&C growth though, the forecast is still positive, Weisbart says.
"The U.S. economy is forecast to keep growing, but slowly," says Weisbart.
Gross domestic product is growing from low recession-era levels, but is doing so slowly. The U.S. GDP forecast for annual growth through 2013 is three percent, but is threatened by uncertainty in Europe as well as planned federal spending cuts, the expiration of income tax rate reductions and the end of some unemployment benefits on Jan. 1, 2013
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