P/C Execs Expect Terrorism Insurance Renewal, Win in Katrina Suits

January 11, 2007

Leaders of the property/casualty insurance industry expect Congress to extend the Terrorism Risk and Insurance Act in 2007, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its 11th annual Property/Casualty Insurance Joint Industry Forum.

Eighty-nine percent of executives in the property/casualty industry are confident that the new Congress will move quickly to extend the law a significant period or provide a permanent backstop.

“Five years since 9/11 and the frequency and severity of future attacks is still fundamentally unknowable,” said Dr. James Valverde, vice president of Economics and Risk Management, I.I.I. “The need for a public/private partnership continues. The benefits are many, including promoting stability in the financial markets and to focus the federal role on those risks the private sector is not able to assume,” he explained.

When it comes to whether Congress will adopt a National Catastrophe Insurance Plan in 2007, however, 88 percent of respondents do not think it will occur. In addition, 63 percent of insurance leaders think the push for an Optional Federal Charter will not gain momentum in the new Congress.

Respondents still believe that insurers will prevail in wind vs. water suits. Eighty-one percent are convinced that litigation will be successfully resolved in favor of the insurance industry.

Looking at the industry’s financial performance, a majority of industry leaders believe the market will soften in most property/casualty lines. Broken down by lines of insurance, 71 percent of respondents do not think there will be an improvement in personal auto; 65 percent do not expect an improvement in homeowners; 54 percent of respondents do not expect an improvement in workers compensation; and 70 percent of respondents do not expect an improvement in commercial lines.

As compared with 2006, 75 percent of respondents believe the combined ratio will be higher in 2007. The combined ratio, a percentage of each premium dollar a property/casualty insurer spends on claims and expenses, is estimated at 94.3 for 2006.
“Looking forward to 2007, the year holds the potential to give rise to a 3- 4 point deterioration, owing largely to falling rates and higher catastrophe losses,” said Robert Hartwig, president and chief economist of the I.I.I. “Still, we can expect to see strong results, assuming ‘normal’ catastrophe activity. Bear in mind, climatologists are predicting a 40 percent increase in hurricane activity relative to a 50-year average.”

Sixty-five percent of respondents believe property catastrophe reinsurance pricing will ease in 2007.
On the investment side, 82 percent of industry leaders are looking for another up year in the equity markets.

Seventy-seven percent of respondents do not expect consolidation among insurers and reinsurers. In addition, 65 percent of respondents think property catastrophe reinsurance pricing will ease in 2007.

The majority of insurance leaders – 67 percent – expect interest rates to remain flat in 2007, while 18 percent believe rates will rise and 16 percent believe rates will fall.

Source: Insurance Information Institute

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