Ppty-Casualty Insur Premiums Seen Up 12.7% In '03-Survey

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurance premiums are expected to again increase in 2003, but moderate somewhat from 2002, according to a new survey released Monday by the Insurance Information Institute.

In its annual "Groundhog Forecast," the trade group predicted net written premiums will increase 12.7% this year, driven in part by rising insurance rates and higher demand, said Robert P. Hartwig, chief economist for III. The group surveyed analysts and industry professionals on their thoughts on the industry's results for 2002 and for 2003.

Average net written premiums are expected to increase 14.2% in 2002, which would represent the first deceleration in net written premium gains since 1998, Hartwig said.

Despite the expected deceleration, industry fundamentals indicate the hard market - a period of rising rates and tighter underwriting - needs to continue, Hartwig said.

"The dramatic acceleration in premium growth from their post-World War II lows in the late 1990s, the similarly impressive improvement in underwriting performance and the relatively short duration of previous hard markets - three to four years - suggest that the end of the hard market must be near," Hartwig said. "But lurking just below the surface is a far more disturbing and sobering picture - one that suggests that if the current hard market ends anytime soon, it will end badly."

He noted the expected 4% industry return on equity in 2002 is better than 2001, but well below the 10% ROE generally expected among U.S. industries in this time of recession.

Analysts and industry professionals surveyed by III believe the industry will generate a combined ratio of 102.9% in 2003, improved from the 106.1% combined ratio expected in 2002. Combined ratio is a measure of underwriting losses and expenses per premium dollar earned.

However, the combined ratio won't come anywhere close to generating industry returns of 10% to 15%, Hartwig said.

"In the current investment environment, combined ratios must fall below 95(%) before the industry's financial performance achieves consistency with the risks it assumes," Hartwig said.

-By Chad Bray, Dow Jones Newswires; 201-938-5293; chad.bray@dowjones.com

Updated February 3, 2003 12:20 p.m. EST