Releasing it annual “groundhog forecast for 2004”, the U.S. Insurance Information Institute (III) reports analysts’ views that premium growth will decelerate, but the industry’s combined ratio will continue to drop in 2004. Citing an average 7.4% growth in premiums for 2004, analysts say this will come from price increases but also increased demand for insurance as the overall economy rebounds this year. While rates increased an average 3.4% from 1990 to 2000, 2002 saw 14.6% premium growth followed by 10.4% growth in 2003. Nonetheless, analysts predict the industry’s combined ratio will drop on average to 100.3%, down from 101.4% in 2003 and well off the 115.7% posted in 2001 following the 9/11 terrorist attacks. The III notes analysts’ predictions are based on a normal catastrophe year. In the final analysis, 2004 is expected to be a strong year for insurers, with a double-digit return on equity (ROE) for the first time since 1997. Part of this recovery will come from the expected upswing in investment markets, although analysts caution that insurers need to maintain price discipline. In fact, analysts put fears of a softening market at the top of the “risk list” for 2004. This may explain the wide divergence in predictions for premium growth, ranging from 5.2% to 10.0%. Another concern is further financial strength downgrades, with analysts stating that in the current favorable pricing environment, upgrades should be outnumbering downgrades, rather than vice versa. Insurers’ results also continue to be challenge by the adverse litigation environment in the U.S. and the failure of legislators to pass asbestos or tort reform. Analysts also predict insurers will push near the end of the year to have the 2005 sunset provision in the Terrorism Risk Insurance Act extended. Analysts participating in the groundhog forecast include Tillinghast-Towers Perrin, Raymond James, Fox-Pitt Kelton, Gill & Roeser, Standard & Poor’s, Merrill Lynch, Godlman Sachs, A.G. Edwards, Prudential Securities and the Insurance Services Office (ISO).