Property/casualty agencies and underwriters can expect their troubles to carry over into the new year, says an economist with the New York-based Insurance Information Institute.

Robert P. Hartwig says the softness of the market, which dates to the late 1980s, will not change soon. Because premiums are not growing, consolidation and cost cutting will continue in 1999, he added.

Merging or being acquired are the only ways that "any company is going to show any revenue growth" this year, Mr. Hartwig said. Last year set a record for such deals, with more than 400 of them, valued at about $150 billion. Mr. Hartwig expects as many deals this year, with the total approaching $175 billion.

Though attention was riveted on the Citicorp-Travelers merger in 1998, Mr. Hartwig says he expects 1999 to be a year of global insurance mergers.

Asian companies, looking for deep-pocketed Western companies to smooth out domestic economic troubles, will seek U.S. insurers as partners, he said. And European and U.S. companies will announce mergers as well.

Low interest rates contributed to 1998 difficulties. Insurers' investment returns dropped about 5.1% because of interest rates and the lack of new premium dollars to invest, Mr. Hartwig said. He said that trend will also probably continue in 1999.

The weather did not help the industry either. U.S. property/casualty insurers took a $9 billion hit for insurance payments to victims of Hurricane Georges and El Nino-related storms.

But the industry will not look for growth only through consolidation, Mr. Hartwig said. It will seek premium growth through new products, such as corporate earnings insurance and political insurance to guard against upheaval in foreign countries where a company does business, he said.

And insurers and agents will focus anew on cost cutting, he said.

"There are few other places to look" for additional revenues, he said. "Slow premium growth means slow commission growth."

Though banks are small players in insurance, they are beginning to make inroads, he said.

But bank agencies will be forced to trim expenses to find healthy growth, he said. And conditions in 1999 may be less appealing to banks that are still considering entering the property and casualty business, he said."To the extent that returns in insurance overall are not good for companies that have been in the business for years, the business may not be as good for banks to get in," Mr. Hartwig said.

However, not all the news is dire for property and casualty insurers, Mr. Hartwig said. Return on equity adjusted for inflation was 6.4%.

Though it fell off from 9% in 1997, it is roughly in line with 1996's real return on equity, 6.3%. By this measure 1998 was "a middle-of-the-road type of year," Mr. Hartwig said, and the 12th-best year since 1950.

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