Mr. Lane: There was a lot of optimism for broad price increases following the record hurricane losses in the fall of 2005, but price increases have developed less favorably than the most optimistic expectations. Property insurance prices, and particularly catastrophe- exposed property insurance prices, have gone up quite meaningfully and continue to increase. However, we did not see the follow-through on the casualty side of the business. There still seems to be pressure on pricing, although pretty modest in the aggregate within commercial lines. While pricing has been somewhat disappointing, earnings results have actually been quite good. While there has been some pressure on top-line premium growth because of pressure on casualty pricing (the majority of the market), the claims inflation environment has been pretty benign. In addition, there have not been a lot of large catastrophe losses or other large, non-catastrophe losses in the first half. Higher interest rates have also benefited net investment income. So, overall, earnings have been a lot better than expected so far this year.
TWST: Mike, what is your take on what we have seen so far this year?
Mr. Grasher: My take would be very similar to Mark's. I would just add
that I think the lower premium size companies ' the underwriting that
goes on with the average premium size being 3,000-12,000 ' see less
pressure from a casualty standpoint than the larger premium sizes. By
and large, this reflects what various management teams throughout our
coverage universe seem to be experiencing. From a personal line
standpoint, I would echo Mark's sentiment in terms of the property side
of things in the cat prone region of the country, where they continue to
see nice pricing. At the same, here in the Midwest, in California, and
in Texas, it is very competitive in some of those areas, particularly
within the auto industry. That remains and I don't think that it is
going to change much.
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