Property-Casualty Insur Rates Likely Firm Into '04 -Panel

   Of DOW JONES NEWSWIRES

NEW YORK -- Property-casualty insurance rates are likely to continue to rise or stay firm into 2004, according to a panel of insurance experts.

Speaking on a panel at the Association of Insurance and Financial Analyst's conference in Scottsdale, Ariz., Stephen Lilienthal, chairman and chief executive officer of the insurance companies of CNA Financial Inc. (CNA), said rates are likely to remain firm in part due to continued economic pressure and less capacity, or available insurance, in the marketplace.

The industry also is likely to face more external pressure from regulators, rating agencies and auditors when it comes to available capital, he said.

Brian O'Hara, president and chief executive of XL Capital Ltd. (XL), said the current insurance cycle is a "work in progress."

O'Hara said the industry is likely to see more insurance companies collapse in the coming months, which will take further capacity out of the market. That should fuel tighter and harder market conditions by the industry, he said.

He pointed to Kemper Insurance Cos.' recent problems, including decisions to sell renewal rates for a number of businesses to other companies.

O'Hara, XL Capital's president and CEO, said insurers focused too much on satisfying their customers and gaining market share in the late 1990s, rather than underwriting. That's what has led to the many problems and reserve additions the industry is experiencing today.

Meanwhile, Lillenthal, chairman and CEO of CNA's insurance companies, said asbestos will likely continue to be a distraction for the industry - whether it's a global settlement or a large case that weighs on the industry.

The workers compensation market will continue to deteriorate, particularly in California, Lillenthal said.

Lillenthal noted the business line is a necessary part of the landscape and should be a significant part of the portfolio at most large commercial insurers. Lillenthal said he would ultimately like it to be about 14% to 15% of CNA's business.

O'Hara said workers compensation is not an area the Bermuda insurer feels very comfortable operating in, saying it is daunted by any line that is highly regulated.

It's not likely that regulators will approve the rates needed by workers-compensation writers to generate appropriate return on risk, O'Hara said. Returns-on-equity in workers compensation are much lower than other lines of business, so insurers are likely to commit their capital to other areas, he said.

Lillenthal said something has to give on medical malpractice. It's a segment that CNA moved out of some time ago, he said.

For an insurer to operate in that business, they must have a "very, very smart group of underwriters and lawyers and claims adjusters," Lillenthal said. He described the current environment as playing with nitroglycerin.

On a federal backstop for terrorism insurance, Lillenthal said it's nice to have, but the issue of terrorism coverage wasn't resolved by the legislation. It begs further solution, but he fears the industry will still be seeking a solution when the law expires in three years.

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

Updated March 3, 2003 11:40 a.m. EST