"There could be a backlash against industry that makes next soft market tougher than it otherwise would have been if it wasn't for [the] whipsaw [of] increased rates post 9/11," he told listeners.

While Mr. Buckley didn't predict exactly how this backlash would play out long term, he did remind listeners about the "structural changes" that came out of the 1980's "whipsaw" in commercial insurance rates--in the form of big movements to captives and self-insurance.

Recalling the "whipsaw" of property-catastrophe prices in the early 1990s, he commented that while "CAT bonds haven't taken off," their development as a result of reinsurance price hikes "made it tougher for reinsurers to continue charging the rates they were?because of fear of losing out to the capital markets."

"When you get these whipsaws, policyholders don't like it and they react to it?in ways that right now are tough to anticipate."

Fitch held the conference call to present key conclusions from its just-released insurance industry outlook reports for the p-c, life and health sectors.

The p-c outlook, available on the rating agency's Web site (www.fitchratings.com), includes estimates of key financial results for 2001 and 2002, with segment projections for the commercial, personal, and reinsurance segments.

Overall, Fitch is predicting 10 and 14 percent increases in net written premiums for 2001 and 2002, respectively, combined ratios of 115.6 and 107.8, and a surplus drop to roughly $290 billion for both years.

Noting some uncertainly about whether some of the losses from 9/11 and some "kitchen-sink" charges for loss reserves and other issues will be recognized in fourth-quarter 2001 or the first-half of 2002, Mr. Buckley also gave the "run-rate" combined ratios for the two years, excluding those factors. The "run-rate" combined ratio estimates are 108.0 and 105.2.

Mr. Buckley highlighted declining investment income as a "very significant" trend that he feels is being overlooked by many industry commentators.

Projecting investment income of just under $37 billion for 2001, he said the figure is roughly 10 percent below 2000. "That's due to very low interest rates throughout the year, as well as very weak cash flow for the industry."

"Many are focusing on the hard market and the top line, but not as much on the effect that investment income will have on earnings. Our sense is that low interest rates will offset and mask some of the benefits of hard market [and] that earnings growth will not nearly parallel top-line growth."

Referring to the surplus decline, he noted that the $290 billion surplus level implies a premium-to-surplus ratio of 1.2, compared with ratios below 1.0 in recent years. "That's still a very strong number, but if you start breaking it apart between the personal and commercial lines sectors and pulling out large companies like State Farm, Berkshire, it's safe to say we're no longer in an excess capital position," he said.

Pulling together Fitch's underwriting and investment income projections for 2002, he noted that they imply a return-on-surplus, excluding realized gains of about 2 percent. Even very favorable assumptions, likely removing "kitchen-sink" charges and assuming robust instead of flat investment income growth, would only push that return up to 5 percent, he said.

Fitch is maintaining a negative outlook on the commercial and reinsurance sectors, while the rating agency has moved its outlook on personal lines to stable from negative.

From a ratings perspective, he said, that companies in the commercial and reinsurance sectors that simply ride earnings cycle up over next year or two are not prone to ratings upgrades, explaining that normal cyclical fluctuations in earnings are already factored into Fitch's ratings analyses.

To boost their ratings up, companies will need to do "something enduring"?indicating that they really have been able improve their business franchises in ways that will position them better for next hard market, he said.

In personal lines, Mr. Buckley noted improvements in the auto line drove the outlook change, but said homeowners is still a "pretty lousy line from a profitability perspective."

"In many ways, it always has been," he said. "We're not sure it's any worse at this point than it has been?, but it's something we're taking a look at," he added, noting that the question of whether homeowners has become chronically worse is one that has sparked some internal debate at Fitch.

Mr. Buckley also said that while [claims for] "toxic mold is a wildcard" for the homeowners line, it was not enough to warrant a negative outlook for the personal lines sector.

In addition to reviewing the financial projections, Mr. Buckley made the following "kitchen-sink" remarks about restructurings, financial services convergence, and financial black holes.

? Black Holes: "We're more and more thinking about some of the pools that are out there as the black holes of industry," he said, referring not just to the Unicover workers' comp pool demise in the late 1990s, but to the recent blowup of Fortress Re, an aviation pool. "There's definitely a better need for tighter pool management, possibly better regulatory oversight, and better scrutiny by industry participants that get involved in these pools," he said.

? Commercial Lines Restructurings: "We think a lot of restructuring will come for companies that experience a reinsurance squeeze--where the impact [of] heightened reinsurance costs or lost capacity will be more pronounced on their financials than the benefits they get from a hard market. They may be forced to exit or cut back lines of business."

? Financial Services Convergence: Referring to Citigroup's move to divest Travelers, he said, it is probably a good sign that ownership of p-c companies by banks is "a dead issue."

Mr. Buckley also predicted that a terrorism pool will not come any time soon. He said that there is "no general sense of urgency" in Congress surrounding the issue of a lack of terrorism coverage and its impact on the economy.