Analyst: Primary insurers facing "soft pricing"

Property and casualty insurers will face an uneven time over the next 18 months as primary insurance weakens, but reinsurance pricing remains strong, a Stifel Nicolaus & Co. analyst wrote in a research note Wednesday.

Analyst Michael Paisan said the current market is "clearly a soft pricing environment, especially for primary companies." Paisan noted the reinsurance market has been able to hold rates "at adequate levels," not succumbing to the weakening credit and lending markets.

In a visit to property and casualty insurance firms based in Bermuda, Paisan said insurers were becoming more defensive in the market, willing to sacrifice some new business growth to maintain margins.

"The focus seems to be more defensive in nature as companies try and protect the markets and accounts they have because they have better control and understanding of how to price the business," Paisan said.

Paisan said profitability should remain with the insurers, but is likely to dwindle in the next couple of years.

Insurers looking to expand operations could grow international operations, Paisan said. Dubai, Australia, Brazil and Asia are the primary locations of focus for international growth, he added.

After the meetings, Paisan maintained "Buy" ratings on Arch Capital Group Ltd., Axis Capital Holdings Ltd., PartnerRe Ltd. and XL Capital Ltd.

Shares of Arch Capital fell 57 cents to $69.65 in late afternoon trading. Axis Capital shares fell 36 cents to $34.45. PartnerRe shares fell 55 cents to $72.60. Shares of XL Capital fell 89 cents, or 2.6 percent, to $32.92.