Underwriting in the property/casualty sector improved during 2003, with a year-end combined ratio forecast at 101%, but the sector has a long way to go before strong returns can be achieved, said AM Best's annual review/preview report.
It said recent improvements in operating performance had been hard fought and were not without continued pressures from a variety of fronts.
The ratings agency said continued underwriting enhancements, cost efficiencies, price monitoring and investment diversification, along with other measures, were fundamental measures needed to stay ahead.
It said the property/casualty sector needed to continue to adhere to the stricter underwriting discipline introduced over the past two years. By maintaining underwriting fundamentals, the industry can better mitigate the myriad other issues, including weather, investment, inflation, regulatory and political issues.
For 2004, AM Best said it expected to see continued price increases as many variables eroded the adequacy of pricing, including loss-cost trends, reinsurance costs, interest rates and prior-year reserve development.
The ratings agency also predicted further sizable reserve actions as more companies move to solidify their balance-sheet strength, given the strong pricing environment.
Other expectations for 2004 include a spread in the use of ratings trigger clauses by brokers, tougher acceptance guidelines for insurers, the formation of new insurance organisations and a declining success rate of these new ventures as market conditions begin to soften, said the company.
AM Best predicted that companies maintaining discipline and a strong balance sheet will be in a position to take advantage of capacity issues, as there will continue to be disruption within certain marketplaces. It said strong companies would be in a position to pick up a solid book of business.
