Post Sept. 11: Strong Growth & Better Underwriting Performance for Property/Casualty Insurance Industry in 2002, Analysts Forecast

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NEW YORK, Dec. 14, 2001 -- Analysts see strong growth and better underwriting performance for the property/casualty insurance industry in 2002, but not all due to September 11. In the annual Early Bird Forecast, conducted by the Insurance Information Institute (I.I.I.), analysts are estimating an increase in net written premiums of 15.1 percent. If realized, the industry will grow at its fastest pace since 1986.

"Sluggish premium growth during the 1990s - principally the result of intense price competition - has clearly given way to much stronger gains," said Robert P. Hartwig, Ph.D., vice president and chief economist for the I.I.I. "The current hard market was already well under way before September 11, with renewals in most major commercial lines in the 10 to 15 percent range."

Hartwig noted that after September 11, which are expected to cost insurers at least $40 billion, the pace of increases for 2002 renewals in many of those same lines accelerated significantly.

"These increases reflect the heightened risk being assumed by insurers as well as a stronger demand for insurance products," he said. "There is also a decreased capacity in the short to mid-term because of the insured losses that resulted from the terrorist attacks. The combination of increased premium and new capital will replenish the supply and allow insurers to underwrite greater risk as time goes along. But this can't happen overnight."

The industry's underwriting performance is also expected to improve next year. Analysts have projected the combined ratio -which relates losses and expenses paid to premium income-to fall to 108.0 in 2002, down dramatically from an estimated record high of 118.6 this year. A ratio of 108.0 means the industry allocated $108.00 to claims and expenses for every $100 of premium earned. If realized, the industry will see its first decline in the combined ratio since 1997.

As of mid-December, property/casualty stocks were down 4.8 percent for 2001 (compared to declines of 11.2 percent in the S&P 500 and 18.2 percent in the Nasdaq). "Immediately after the September 11 terrorist attacks, insurance company stocks dropped precipitously as investors considered company liabilities for losses and the prospect of future attacks," said Hartwig. "The markets have recovered since then, with insurance stocks among the market leaders. Investors have recognized that insurance companies are both paying claims stemming from September 11, and are taking steps to adapt to a very different environment in the aftermath, while preserving their long-term financial strength."

You can view the Earlybird Forecast for 2002 at the following address: /media/industry/financials/forecast2002/