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By DAN REYNOLDS, senior editor of Risk & Insurance®

It will be a long time, a very long time, before there is any growth in net written premiums in the insurance industry.

For one, the business remains substantially overcapitalized. That's according to Jay Gelb, a senior research analyst with Barclay's Capital, who estimated that the P/C industry is currently overcapitalized to the tune of some $100 billion.

"It's going to take a long time to work off that excess capital," said Gelb.

Gelb said that he expects 2010 to report a slight decline in net written premiums, which would mark its fourth straight year of decline, the most since the Great Depression.

Even if there is an increase in net written premiums in 2011, Gelb said, he expected it to be in the low single digits.

Another explanation is the weak economy, according to Thomas Motamed, the chairman and CEO of CNA Financial, who, as many others have recently, pointed to high unemployment and a failure on the part of banks to lend to small business as a factor in lack of premium growth for insurers.

"I think the banks need to loosen up and lend some money," said Motamed.

Even apart from the slow economy, the paralysis of the banking industry and the soft insurance market, there is another factor to consider.

"Insurance is really a mature market, let's face it," said Sandra Parrillo, a joint industry forum panel member and the CEO of the Providence Mutual Fire Insurance Co.

Parrillo said that one of the chief places insurers are finding premium growth is not from customers new to the industry but through stealing competitors' business.

For now, the industry's assets at least are safe.

P/C insurers, which produced an industrywide combined ratio of 101 for 2009, have been helped along by the lack of a major catastrophe and are operating in an economic environment that features a slow and stable-looking economic recovery.

With equity markets having been recently a catastrophic and now mediocre place for returns, insurers are investing in their infrastructure with the hopes that they can deliver the best possible service to the customers that they are retaining. Although the Dow Jones Industrial Average has shown some recovery this year, it is still 25 percent below its October 2007 highs.

For all of Gelb's data on overcapitalization, some panel members said, those who have looked at the market long enough and seen in the past decade the effects of a Hurricane Katrina or a Sept. 11, 2001, know how quickly a market can change, how quickly prices can rise and how capital can also evaporate.

Scott Harrington, a healthcare and risk management professor, cautioned listeners that the $100 billion bulge referred to by Gelb could disappear in a big hurry when disaster strikes.

Although Harrington referred to the strong performance of the P/C industry as the "greatest untold story of 2009," he also said, "It's amazing how fast these things can turn around."

January 15, 2010

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