Insurance company executives say they are determined to make an underwriting profit, though many also expect the hard market to last only for another year or two, an American Re Corp. survey concludes.

Meanwhile, most executives surveyed cite tort reform as the most critical issue Congress needs to address. A year ago, a comparable group of executives cited terrorism coverage as their No. 1 concern.

American Re, a unit of Munich Reinsurance Co., surveyed 50 insurer chief executive and senior officers about the issues their own operations face, as well as those affecting the industry overall. The canvassing occurred last week during an annual forum at the reinsurer's Princeton, N.J., headquarters. The executives represented companies ranging in size from small to large regional insurers.

Executives from stock companies, which accounted for half of the respondents, unanimously said they had targeted a combined ratio of 100% or less for 2003-2004, with 71% targeting a combined ratio of below 95%, and 29% aiming for a ratio in the 95%-100% range. In contrast, last year only 26% anticipated a below-95% combined ratio, while 47% expected a ratio in the 95%-100% range, 21% expected a ratio of 100% to 105%, and 6% had a target of 105% to 110%.

Responses from mutual insurance company executives indicated a similar trend. A total of 32% mutual respondents said their 2003 target was below 95%, while 50% said it was 95%-100%; 14% said it was 100%-105% and 4% said it was 105%-110%. In 2002, only 12% of mutual respondents had a target ratio of less than 95%, while 54% expected a ratio of 95% to 100% and the remainder were targeting a ratio of 100% to 105%.

In addition, when asked about the three most critical issues their company faces, 55% of insurer executives surveyed cited maintaining underwriting discipline and price adequacy. This was followed by maintaining their rating agency rating, cited by 40%; and access to capital and financial flexibility, cited by 30%.

Asked about the three areas where the executives felt their company needs to improve, the most common answers were strong capital position, policy processing and underwriting capability, which were reported by 38%, 36% and 34% of the respondents, respectively.

Meanwhile, 52% of all the respondents said they expect the hard market—which was defined as price increases above claims cost inflation, or those above about 5%—to last only through 2004, while another 13% said it would last through 2005, and 8% predicted a longer duration.

Dominic Addesso, president of American Re's direct treaty unit, said while it is difficult to prognosticate more than a couple of years ahead, "that many of the respondents felt that the hard market would last until 2005 was a very positive reaction."

Mr. Addesso added that "there seems to be a greater resolve to not fall back to soft-market pricing." While executives may expect increases to abate after two years' time, "they certainly feel that managers have the discipline to at least maintain adequate pricing going forward," he said.

Executives were also asked about the most critical issues the primary property/casualty insurance industry faces. Forty-seven percent cited low interest rates and capital market returns; 45% cited the ability to file and use adequate rates due to state regulation; and 25% each cited the continued emergence of asbestos and environmental liabilities and restrictive state regulations, such as the use of forms.

Jack Snyder, American Re's chief marketing officer, said there is now a "widespread recognition by the industry, whether you're stock or mutual, big or small, that it's imperative to generate much more robust underwriting profit to offset the significant decline in income coming from investment income, or from the financial markets in the form of capital gains."

Meanwhile, 57% of the executives said they expect more insurer failures in 2003-2004 compared with 2001-2002, while another 7% anticipate significantly more. Thirty percent believe the level will remain about the same, while 6% say it will be lower.

When asked about the most pressing matters before Congress, 70% of the executives cited general tort reform as the top priority. This was followed by medical malpractice and asbestos liability reform. Also cited were reforming the Terrorism Risk Insurance Act, reforming the Sarbanes-Oxley corporate governance measure, and developing an optional federal charter for of insurers.

"The survey basically concludes that the industry's screaming, crying for some type of tort reform," Mr. Snyder said.

Copies of the American Re survey results are available from Terese Rosenthal, 609-243-4339, trosenthal@amre.com