Some Property Insurance Lines May See Softer Rates In '03

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurers must produce strong results in 2003, in part because rates may soften much quicker than originally expected.

In a research note on Thursday, Chris Winans, a Williams Capital insurance analyst, said industry executives at the Association of Financial and Insurance Analysts' conference earlier this week were mixed about how long the strong pricing cycle can last.

However, the key message was insurers must generate strong returns this year, Winans said.

"If an insurer of any type can't generate spectacular returns in 2003, it will have squandered a rare - and apparently briefer than expected - hard market opportunity to do so," Winans said. "Few market observers are expecting rate increases to do anything but keep winding down. The question is - when will price erosion return?"

Speculation is that pricing competition could return to some property lines before the end of 2003, Winans said.

However, casualty rates are expected to remain firm for some time. Insurers began raising rates in property lines much quicker than casualty lines when the market began firming a few years ago.

Property-casualty insurance stocks were mixed Thursday as broad selling sent the major indexes lower.

In the second half of 2003, Winans said he would expect some bounce in the stocks of property-casualty companies that show the biggest upward earnings surprises coupled with decent book value growth as they benefit from peak rate increases last year.

"By year-end, we would narrow our focus to only the cream of the crop - insurers, both personal and commercial, with sustainable competitive advantages and growth potential," Winans said.

Safeco Corp. (SAFC) and Chubb Corp. (CB) are two stocks Winans believes are undervalued relative to historic trends. Both have solid brand-name franchises under new managers motivated to restore their earnings potential, Winans said.

Winans doesn't own any insurance stocks.

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

Winans, the insurance analyst, formerly worked as a journalist for The Wall Street Journal, which is published by Dow Jones & Co. (DJ), which also publishes this newswire.

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

Updated March 6, 2003 11:17 a.m. EST