Speakers at the recent Society for Insurance Research forum pointed to lack of underwriting excellence and reserve issues as among a host of problems dragging down the insurance and reinsurance industries. “I haven’t seen an insurer CEO smile in the past six months, and I talk to a lot of them,” says Myron Picoult advisor to Lazard Freres & Co. “ROE (return on equity) number must get real.” Several speakers chastised the industry for unrealistic underwriting practices. “We’re an industry that doesn’t stand prosperity very well,” says Kemper Auto and Home Group COO Dale Hammond. He pointed to the tendency for insurers to price rates inadequately even as profits decline. Gavin MacFarland, vice president of Morgan Stanley’s global insurance group put the blame on underwriting as well, particularly in the face of declining investment returns. “I really think that underwriting as an art has been lost for the most part.” Despite last year’s commercial rate increases of 20-25%, this will slow to 15-20% this year, predicts Mark Puccia, managing director and chief criteria officer for Standard & Poor’s financial services ratings group. “Downgrades will exceed upgrades” in 2003, he says. And the gap will widen between the winners and losers in the market, predicts Keith Buckley, managing director of Fitch Ratings. Intense competition, tort laws, investment woes, reinsurance availability, catastrophes, and reserving are among the challenges he says continue to dog the industry. “Industry loss reserve deficiencies appear to be larger than at any time since I entered the industry more than 20 years ago,” comments Michael Murray, assistant vice president of financial analysis for the Insurance Services Office. He points to the number of asbestos litigants rising to as high as 1 million in the U.S. In regards to asbestos claims, the U.S. industry is under-reserved for the US$60 billion in total reinsurance burden it will likely face, says Brad Kading of the Reinsurance Association of America.