NU Online News Service, Jan. 13, 1:20 p.m.EDT

NEW YORK--The moribund economy will combine with zerointerest rates to deliver a one-two knockout punch to property andcasualty insurer bottom lines, with a significant turnaround inrates and premium volume unlikely before next year at the earliest,industry leaders predicted here.

Indeed, even though "the worst of the financial crisis is over,"according to Jay Gelb, a director at Barclay's Capital, "propertyand casualty insurers are not going to see premium growth anytimesoon."

Mr. Gelb, part of a panel of analysts speaking here yesterday atthe annual P&C Insurance Joint Industry Forum, said that mostinsurers are "likely to see a decline in premiums due to continuingeconomic woes." He cited "shrinking payrolls, failing businessesand a declining number of business startups" as among the factorsdampening premium growth.

"Even in 2011, you can expect very moderate growth ahead," addedJoe Guastella, a principal and global insurance leader at Deloitte."It will be a pretty stagnant market for the foreseeablefuture."

Mr. Guastella did note that he expected "some individualcompanies to experience organic growth, mostly by sticking to theircore competencies"--citing "auto writers who expand into newstates, or small commercial lines carriers branching out into newindustry niches. But you won't see any big growth for the industryoverall."

The mood was similarly restrained among a second panel ofindustry CEOs at the Forum, where 16 industry associations gatherannually to discuss the state of the p&c business.

"Let's face it, the economy is just not very robust right now,"said Thomas Motamed, chair and chief executive officer of CNA."Exposures are down, and you have tougher buyers out there lookingto lower their own costs of insurance. That makes for a challengingmarket."

Patrick Thiele, president and CEO of Partner Re, blamed the"unintended consequences" of keeping interest rates near zero forthe pressure on insurance company bottom lines. "Going that low [oninterest rates] was necessary to save the banking industry andreboot the economy, but it has a negative effect on insuranceinvestment portfolio returns."

He noted that with reinsurance rates flat at the most recentrenewals, there is even less pressure on primary carriers to raisetheir rates in a shrinking economy.

Mr. Motamed set forth the economic recovery that must play outbefore the p&c insurance sector will see any renewed growth inpremiums.

"Unemployment has to come down and payroll must rise," he said."Banks need to loosen up and lend more money to help businessesstart up and expand. The housing inventory has to drop so peoplewill start buying homes again. Retail sales need to pick up."

In the meantime, he added, "you're likely to see more pricingdiscipline on new business," as insurers must deliver anunderwriting profit to keep their bottom lines in the black in theabsence of significant investment returns.

Sandra Parrillo, president and CEO of Providence Mutual, agreedthat "we'll need sustained economic growth to see growth in ourindustry. As demand for our products falls in this strugglingeconomy, competition for the remaining exposures intensifies."

Describing the p&c business as a "mature market," Ms.Parrillo said "there's not a lot of new business out there," sothat "to retain market share, a lot of our growth will come fromstealing business from our competitors--especially for highlydesirable business," putting downward pressure on pricing.

Mr. Gelb estimated that the p&c industry is "overcapitalizedby 20 percent," meaning there is more capacity in the market thandemand for it. "The biggest challenge for carriers will be what todo with all that excess capital. It will take time to work thatexcess off. It will not all be burned off in stock buybacks. You'regoing to need to see some losses [on underwriting] before you'llsee any turnaround in rates."

However, Scott Harrington, a professor of insurance and riskmanagement at the Wharton School, warned that he has "seen excesscapital drained in a very short time" by major catastrophes. "Soour current situation could be deceiving."