Fitch said p-c insurers are focused on adapting to dramatic changes in the operating environment and replenishing lost capital in many circumstances, so it will take some time for conditions to stabilize.

"As insurance prices are increasing market-wide, property-casualty insurers have the best organic growth prospects since the late 1980s, and have less incentive to pursue growth opportunities through acquisitions," according to Scott Edmiston, associate director at Fitch Ratings. "The property-casualty industry net written premium will increase by 10 percent in 2001, and projects growth of 15 percent in 2002 based on an acceleration of recent pricing trends."

According to the report, the GLB Act, allowing ownership of insurance companies by banks, had many industry experts believing the insurance marketplace would consolidate rapidly, but there has been no p-c consolidation activity besides Citibank/Travelers into Citigroup, which is now being unwound.

Fitch said it does not believe the current lull in p-c acquisition activity is a permanent phenomenon. Assuming the market environment stabilizes and there are no other major shock-loss events in the industry, acquisition activity is likely to pick up sometime in 2003, Fitch forecasts.

Fitch said it does not believe that banks are generally interested in owning p-c insurers given their lower and more volatile historical returns on capital relative to banks, as well as the industry's unique product and risk characteristics.

Based on the less-than-stellar overall track record of the p-c industry in the past decade in realizing benefits from mergers, Fitch said it will approach p-c acquisitions going forward "with an increasingly skeptical eye."

Copies of the report--"Consolidation in the U.S. Property/Casualty Industry: An Update"--can be obtained by visiting Fitch's subscription-based Web site, www.fitchratings.com.