Property-Casualty Rates Seen Higher Into At Least 2004

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurers are likely to see rate increases into at least 2004, a Swiss Re economist said Wednesday.

On a conference call with reporters, Thomas Holzheu, a senior economist at Swiss Re Economic Research and Consulting, North America, said liability lines of insurance are set for further rate hikes - it's a more capital-intensive area to underwrite and there's a shortage of quality capital.

Recent startup insurers have not developed the appetite or ability to write these lines of business on a capital basis, he said.

In property lines, a "leveling off" of rate hikes is the most likely development as those lines have seen dramatic price increases in recent years, Holzheu said. However, he doesn't think insurers will be tempted to lower their rates in the near future in an attempt to grab market share.

"As long as investment yields are low, the underwriters will be very focused on underwriting profitability," Holzheu said. "There was an excess in underpricing. That has been corrected. It's not likely the industry will move in an unreasonable way."

The property-casualty industry's reserves were short by 9% to 10%, or about $35 billion, at the end of 2002, Holzheu said. That's a slight improvement from 2000-01, but still a significant shortfall, he said.

Holzheu said he expects additional consolidation in the industry as the capital-raising environment becomes less constrained and valuations firm up. There was a similar wave of consolidation following the strong pricing cycle in the early 1990s.

Kurt Karl, chief economist at Swiss Re's North American research and consulting unit, said the global economic outlook is improving. The U.S. economy will likely grow about 2.2% this year and 3.5% next year, he said.

Swiss Re is seeing the stock market begin to stabilize and a recovery is likely in the second half of the year, an encouraging sign for insurer's equity portfolios, he said.

Karl said he expects the Federal Reserve to lower interest rates in the U.S. by 25 basis points, but added the Fed could lower rates by 50 basis points.

However, some risks remain. Companies are still cautious, particularly with hiring and inventories, Karl said. Profits are weak, but improving, and recent corporate scandals continue to linger in the market, which could dampen investment.

Karl added that the telecommunications, energy and airline sectors aren't growing and likely won't see a recovery until late next year.

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

Updated June 25, 2003 12:27 p.m.