Ernst & Young review US p&c market prospects.

(From InsuranceNewslink.com)

In 2008, the impact of the financial crisis on the US property/casualty (P/C) insurance industry has been isolated, sparing the industry from serious impairment. Still, the outlook for 2009 includes greater risks to the industry from continued volatility, according to the Ernst & Young Global Insurance Center's US property/casualty industry outlook for 2009.

"Those insurers with strong leadership and financial flexibility will be poised to move forward in this unstable market," said Peter R. Porrino, Global director of Insurance, Ernst & Young's Global Insurance Center. "Insurers will need to address a wide range of risks, including continued volatility in investment and underwriting performance, a potentially active mergers and acquisitions (M&A) market and a more rigorous regulatory landscape. Looking ahead, this may be the beginning of a transitional, if not transformational, environment for the industry."

Ernst & Young has identified seven areas that P/C insurers need to address in 2009:

1. Redirect focus on premium pricing. In most P/C business segments, pricing levels have remained soft for the past four years. Early signs of pricing negotiations show that the market is firming in most lines. Insurers and reinsurers focusing their concerns on loss volatility and the potential for megalosses in highly developed, catastrophe-prone locations should contribute to price stabilisation. At the same time, losses in directors and officers and errors and omissions products are likely to result in price increases in those markets.

2. Monitor claims inflation risk. The economic climate is likely to continue in a volatile pattern that drives claims costs. In spite of the deepening recession and rising concerns about deflation, over the longer term the industry will have to consider the massive deficit spending undertaken by the federal government. Insurers' exposure to inflationary risk can be fundamentally different from the factors that drive inflation in the broader economy: medical costs, construction costs and tort issues continue to account for the lion's share of the industry's inflation trend.

3. Prepare for changes in regulatory oversight. Momentum for change in the insurance regulatory structure is building. As a result of recent market events, including the federal involvement in the banking industry, it is almost certain that the industry will face increased and more intrusive regulation. This is likely to include closer monitoring of activities and financial performance and to require greater consistency and transparency.