Long road ahead for insurers seeking profitability: A.M. Best

The global property & casualty insurance industry has a long way to go on the road to recovery despite price increases and a stronger overall combined ratio, says rating agency A.M. Best.
In its annual “review/preview”, the agency speculates the industry should achieve a 101.1% combined ratio for 2003, but says there is still much to be done to achieve sustainable profitability.
While prices have been firm for the first time in 15, given the trough the industry had dug for itself by competitive pricing, even today’s hard market may not be enough. On top of that, there are already signs of price flattening in the property line, suggesting the turn away from the hard market may already have begun.
” It’s too soon to tell if rates are appropriate,” notes an A.M. Best release. “But one thing is certain: the low interest rate environment has put more dependence on underwriting results as the principal driver of operating performance.”
The report notes that generally conditions in the primary market follow those of the reinsurance market, and despite the growth of new players since September 11, 2001, these players have not significantly undercut prices.
The rater predicts continued pressure on loss costs in 2004 will spur price increases, as will hard reinsurance pricing and the build up of adverse reserve development on prior year claims. In terms of reserves, it is expected that more companies will take sizable reserve additions in an attempt to “solidify” their balancesheet strength.
Continued pressure from brokers in terms of financial strength rating triggers are expected.
Companies that do succeed will maintain underwriting discipline in the face of low interest rates and rising loss costs, and the strongest companies will be able to take advantage of capacity shortages and pick and choose the best business. A.M. Best does not hold out much hope for new ventures, given the expectation of an increasingly soft pricing environment.