SPECIAL REPORT: Groundhog Forecast 2005

Each year before Groundhog Day, the Insurance Information Institute invites a panel of Wall Street stock analysts and industry professionals to come out of their holes, look around for their shadow and forecast their outlook for the property/casualty insurance industry. Legend has it that if Punxsutawney Phil sees his shadow, there will be six more weeks of winter. In 2005, most analysts expect the heat will continue to come off premium growth, while the combined ratio continues to hold steady. This year the survey reveals that the industry’s effort to recover from its worst ever performance in 2001 ran into hurricane force headwinds in 2004. The combined ratio is projected to be 98.9 in 2005, virtually unchanged from the 2004 estimate of 98.7 but down slightly from 2003’s actual combined ratio of 100.1.  If realized, the expected underwriting profit in 2004 would be the first since 1978.  The lack of significant improvement in 2004, despite a favorable underwriting and pricing environment, is almost entirely due to last year’s $21.6 billion in insured hurricane losses.   The survey also found that growth in net written premiums is expected to slow to 2.7 percent in 2005, compared to an estimated 4.3 percent in 2004 and 9.8 percent (actual) in 2003. Looking ahead to 2005, the industry’s major challenges include maintaining underwriting and pricing discipline, achieving passage of federal class action reform and extension of the Terrorism Risk Insurance Act, which expires at the end of 2005.

Download/View File: 2005 Groundhog Forecast (PDF file) (161 K)