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2011 P&C Industry Outlook: Mixed

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Dodging a bullet in the form of a relatively uneventful hurricane season in the Atlantic and Gulf of Mexico, the property and casualty insurance agency enjoyed decent profits amid declining investment yields. Going forward, analysts such as Fitch Ratings and Morningstar predict industry profits will soften in 2011, but overall industry conditions will remain stable barring some type of natural disaster or other catastrophe.

However, the industry has been unable to gain much traction in terms of increasing rates as insurers continue to compete on price, notes Fitch in its 2011 Outlook: U.S. Property/Casualty Insurance. In the report, analysts note: “Competitive fundamentals that promote inadequate pricing continue to persist, making any broad-based near term hardening of rates unlikely.”

Morningstar, in a report issued in September, noted that customers continue to push back on rate increases and anticipates continued contraction in margins. A bad hurricane season or other major issues in 2011 could, according to Fitch, cause “a sharp deterioration in capital from a catastrophic event or other shock.” This would likely initiate a Fitch review that could produce a negative outlook for the industry.

Other issues that are likely to affect the industry in the current year are:

  • Continuing low investment yields
  • Diminished loss reserves
  • Higher expenses
  • Potential for municipal bonds defautls

The life insurance industry suffers from some of the same issues as the P&C sector, such as competitive pressures that have reduced many products to the status of commodities. With consumers and businesses basing purchases on pricing, it’s hard for companies to distinguish themselves on another basis and increase margins. Many companies were hard hit during the financial crisis and had to raise capital, which diluted shareholder value. While most have improved their balance sheets, low yielding investments haven’t helped and the outlook remains difficult into 2011.

If you’re interested in learning more about the property/casualty, life and other insurance sectors as well as their prospects, NYSSA’s 15th Annual Insurance Conference.

–Amy E. Buttell

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