New Capacity--$20 Billion Worth--Poured Into P/C In Past Few Years, But Window Seen Closing.


PHOENIX. Ariz. -- Almost $20 billion in new capacity has been raised for the property/casualty industry during the past three to four years, but the "financing window" may be closing soon, panelist told the Casualty Actuarial Society annual meeting.

Michael Morrisey, chairman and chief executive officer. The Firemark Group, observed that the industry has been able to attract new capital in spite of the poor underwriting results and natural catastrophes of recent years.

He reported that initial public offerings (IPOS) by property/casualty insurance companies had raised 57.9 billion between 1988 and November 1993, surging from a standing start only a few year, ago and more IPO, are planned in coming months. In addition to IPOs $11.8 billion in non-IPO capital was raised during approximately the same period.

"The IPO window open, and closes." he said, "This phenomenon is probably slowing down or coming to an end." said Morrisey.

He also observed that during an IPO feeding-frenzy companies of lesser quality can squeeze through the window.

He reported that the fact that insurance stocks have outperformed the stock market during the last two and one-half year had fostered the capital-raising booms bringing with it a whole new set of investors in the industry.

Morrisey also remarked that the investment community is concerned that the high levels of capital attracted by the industry could weaken the resolve of insurers to raise rate, and seek greater returns.

Analyzing premium and reserve to surplus ratios over the last five years, he commented that the industry might not be chronically over-capitalized as some have suggested, but actually could be "short of capacity for what the evolving environment of the late 1990s is going to bring.

"The imperative of satisfying the buyer's demand for more financial security argues for more capital than the industry has at the moment." Morrissey said.

"We need to restore the integrity of loss reserves about which the investment community is very skeptical," he said. "We need to increase the ability to withstand catastrophe losses."

Additional capacity also is needed to meet the demands of risk-based capital requirements and the scrutiny of the industry's financial strength by outside forces possibly including the federal government, Morrissey said.

Herben E. Goodfriend, director of insurance analysis. KPMG Peat Marwick. stressed that the application of risk-based capital standards will have a major impact on...

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