Forecasters predict 99% combined ratio for U.S. in 2005

The annual “Early Bird Forecast” has analysts predicting the U.S. p&c industry will post a combined ratio of 99.0% in 2005, says the Insurance Information Institute (III).The III conducts the poll each year to determine analysts’ views on the industry, including investment analysts, rating agencies and research firms. The group has forecast the 99% figure, but views varied widely between 95.6% to 102.3%. This compares with an estimated 100% combined ratio for 2004, in the wake of Atlantic hurricane losses which were unusually high. Should insurers be able to post a combined ratio below 100% this year or next, it would be the first time since 1978, the III notes.”While the survey results show some expected improvement, the bottom line is that the industry will still be paying out almost exactly the same amount in claims and associated expenses as it earns in premiums, thereby increasing the importance of investment earnings. Given the current low yield, high volatility investment environment, it is clear that Fortune 500-level returns on equity in the neighborhood of 13 to 14 percent cannot be generated without a contribution from underwriting.”And underwriting is the biggest area of concern for analysts heading into 2005, coming off faster than expected pricing declines this year. While analysts had predicted pricing to drop from its 9.8% growth rate in 2003, the increase in net written premiums is estimated to be almost half that, at 4.8%. Analysts predicted last December that 2004 would see premium growth of 8.1%, with the low end of forecasts at 5.2%. For 2005, analysts predict the drop will be even sharper, to just 3.4% growth, although the range of estimates is wide, stretching from 1.1% to 6.0%.Other problems linger as a result of the “failures” of 2004, namely the failure to pass legislation to reign in tort costs related to class actions, asbestos or medical malpractice, as well as the failure to pass a two-year extension of the Terrorism Risk Insurance Act (TRIA). And late this year, the industry faced its toughest public relations challenge with the investigation into industry practices by New York Attorney General Eliot Spitzer. The resultant nationwide scrutiny of legal and regulatory authorities is sure to hit insurers’ pocketbooks as they strive for greater transparency and compliance with new regulations which will no doubt be brought to bear.