Insurers Ignore Red Lights

Last year I raised a few eyebrows when I suggested that the property-casualty insurance industry's combined ratio could hit 111.7 in 2000 and was on track to reach 136.2 by 2005, based on an extrapolation of then-current conditions. Indeed, the combined ratio for 2000 would have been 111.8 were it not for a drop in catastrophe losses to unusually low levels. I warned about the combined ratio even though the prevailing view among analysts then--and today--is that a long-awaited turn of the underwriting cycle has begun. That optimism is fueled by anecdotal evidence of hardening in the marketplace and the sharp gains insurance stocks posted in 2000. Goldman Sachs, Conning & Company and others report that prices on renewals for commercial lines are up across the board for the first time in years, and personal auto is showing some signs of increasing.