A View From The Press Box

Indeed, in the only light moment of an otherwise grim panel discussion about the difficult year ahead for carriers and their producers, an audience member stood up during the Q&A and complained that insurers had no right to be “euphoric” about achieving a 14 percent rate of return last year, even if that was far better than the single-digit results normally posted, because it still trailed broader industry benchmarks.

“Do we really look euphoric to you,” deadpanned Ramani Ayer, chairman and CEO of The Hartford, drawing hearty laughter from those attending the Property-Casualty Insurance Joint Industry Forum.

Mr. Ayer’s quip amounted to gallows humor, as the panel laid out the formidable challenges ahead. For full coverage of the panelists' frank assessments on the state of the market, click here. Or stay right here and read on for a summary of what p-c insurers and their brokers have to look forward to in 2008:

--The top line will suffer, as commercial lines prices keep falling for all but catastrophe-prone areas. Only 4 percent of those surveyed at the forum foresee any growth in premiums for the year. Nearly two-thirds (62 percent) anticipate “flat” results, while 34 percent predicted that industry-wide premium volume will actually decline.

--The bottom line will erode, with 92 percent expecting a higher combined ratio in 2008. By more than a three-to-one margin, attendees do not expect any improvement in personal or commercial lines profitability.

--The economy will keep weakening, and perhaps even devolve into a full-fledged recession, which will slow exposure growth and perhaps spur a hike in the frequency of workers' comp claims and fraud as thousands more are laid off. If the recession goes global, the impact on insurance will be that much tougher to take.

--Investment income will fall along with interest rates, while a volatile stock market makes equities a riskier bet to offset premium deterioration.

--The dollar will keep falling, leaving U.S. insurers, reinsurers and brokerages vulnerable to takeovers by bargain-hunting foreign firms.

--Insurers will be squeezed like Silly Putty by competing pressure points, as analysts push for growth in a down market, shareholders demand better returns or their capital back, rating agencies discourage irrational rate-cutting to maintain market share despite greater competition, and brokers shop furiously for lower prices to keep their clients happy in a buyers' market. Good luck with that!

Of course, carriers are also holding their breath that we don't get hit with another massive catastrophe (or two, or three, or four) after two blissfully quiet years. Most insurers and their associations would much rather argue with Bob Hunter of the Consumer Federation of America over whether they are making too much money than have to lay out tens of billions to rebuild another state hammered by Mother Nature.

Meanwhile, as if times weren't looking bad enough (at least from an insurance industry perspective), 72 percent of those surveyed at the forum predicted that a Democrat would win the White House on Election Day. That alone would put a frown on the face of the most happy-go-lucky insurance exec, with the vast majority preferring elephants to donkeys as their political pets of choice.

Before you do anything foolish, keep in mind that much like insurance itself, the industry's mood is cyclical. It wasn't all that long ago that I found the leadership of this business in a similar funk. Indeed, I recall writing something to the effect that if the Joint Industry Forum that year would have played a theme song, it would have been "It's My Party, And I'll Cry If I Want To."

This, too, shall pass. In the meantime, insurers should be heartened by the fact that balance sheets are in good shape, the industry is enjoying record profitability, and most carriers have more capital than they know what to do with. (That's not bad for an industry supposedly hard put to raise money because of its historically low rate of return).

What do you folks think?