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PROPERTY/CASUALTY INSURERS FACED PROFIT SQUEEZE IN 1991; NO UPTURN FORESEEN IN 1992, SAYS INSURANCE INFORMATION INSTITUTE

PROPERTY/CASUALTY INSURERS FACED PROFIT SQUEEZE IN 1991; NO UPTURN
 FORESEEN IN 1992, SAYS INSURANCE INFORMATION INSTITUTE
 NEW YORK, Dec. 18 /PRNewswire/ -- The profit squeeze in the property/casualty insurance industry continued in 1991, with the rate of return on capital for full year 1991 estimated at a sub-par 8.3 percent, according to the Insurance Information Institute (I.I.I.). This rate of return is below the yield on low risk, AAA rated corporate bonds.
 The 8.3 percent return for 1991 is slightly below the 8.5 percent rate of return reported for 1990, and considerably below the prior profit peak of 13.9 percent in 1986, reported Dr. Sean Mooney, I.I.I senior vice president.
 This assessment for 1991 is based on preliminary data compiled by the I.I.I. The figures for full year 1991 are subject to revision because they include estimates for the fourth quarter.
 Mooney said the continued squeeze on earnings in the industry reflects two main factors: intense price competition in commercial lines of insurance and rate suppression -- the holding of insurance rates below their true economic costs by government regulators.
 "Over the past four years, the industry has had close to a "fire" sale in most areas of commercial lines of insurance," said Mooney. "Total premiums for lines like fire and general liability insurance have decreased in every year since 1987," he said. "This process of cut- throat price competition can only change when the collective market psychology of insurers turns bearish."
 Mooney said that such a turn could be triggered by a major catastrophe. "Many analysts expected a turn in the cycle following the $4.6 billion loss in 1989 from Hurricane Hugo," he said. "Currently, some observers believe the $1.2 billion insured loss from the Oakland fires in October of 1991 could spark an upturn."
 It should also be noted that 1991 was the second worst year on record for catastrophes, with claims exceeding $4.1 billion. (The record is $7.6 billion for 1989 -- the year of Hurricane Hugo and the "World Series" earthquake.) Despite these losses, the majority of analysts expect no upturn in 1992, Mooney said.
 A second factor depressing profitability in the industry has been rate suppression by regulators, Mooney said. A study just released by the I.I.I., authored by Orin Kramer, a consultant to the financial services industry, analyzed the problem of rate suppression in two lines of insurance, auto insurance and workers compensation.
 The study notes that the problem of inadequate rates set by regulators is particularly severe in workers compensation, where half of the 50 states are identified as suffering from rate suppression.
 "There have been hopeful signs in 1991 of change in this arena," Mooney said. "A number of states have granted higher rate increases, in some cases combined with changes that reduce other costs of the workers compensation system."
 The property/casualty insurance industry experienced no major insolvencies in 1991. At the end of the third quarter, 22 insolvencies were reported by the National Committee on Insurance Guaranty Funds.
 The insolvencies were all small companies. Over the past three years, the cost of insolvent property/casualty insurance companies totaled $1.6 billion, a relatively small amount when contrasted with the multi-billion costs of S&L and bank failures.
 "A major reason why there are such few insurer insolvencies is because property/casualty insurance companies are conservative investors, with close to 80 percent of investments in government bonds," Mooney said.
 -0- 12/18/91
 /CONTACT: Mary Ann Gillis of Insurance Information Institute, 212-669-9200/ CO: Insurance Information Institute ST: New York IN: INS SU: ECO FC-TS -- NY024 -- 3382 12/18/91 11:30 EST
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Publication:PR Newswire
Date:Dec 18, 1991
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