The poor economy remains the main concern of insurance industry executives in 2010, but the recession is less of a worry than it was last year, according to a Munich Reinsurance America Inc. survey released last week.

But even as the economy improves, soft property/casualty pricing isn't likely to end anytime soon, according to the survey.

Of the 30 respondents to the survey, 69% cited poor economic conditions as their No. 1 worry this year, though that's down from 85% in last year's survey by the Princeton, N.J.-based reinsurer. Munich Re America has conducted the CEO Roundtable survey annually since 2003.

Concern over the economy “is perhaps tempered by the fact that companies are much better capitalized than they were last year at this time. Surplus is back, and that is very comforting to CEO's,” said John Vasturia, president of regional clients at Munich Re America's reinsurance division. “But we are still in the early stages of trying to understand if the economy is moving in the right direction,” he said.

Ranking second as a critical issue facing the industry was “low interest rates and capital market returns,” cited by 55% of the respondents. However, 52% of the respondents surveyed this year said claims cost inflation was a critical issue. Last year, the issue did not rank among the top three survey results.

Mr. Vasturia said concerns over claims cost inflation reflect the “assumptions we all have to make about when we thought we would pay out losses. If inflation goes too far, too fast, then those assumptions would be wrong, and we'd actually end up paying out those losses faster instead of holding onto the money and earning investment income on it.”

The rebound in capital across much of the industry has resulted in a slightly more optimistic view of financial prospects for insurers, with 38% describing their company's two-year financial outlook as better or slightly better compared with the two-year outlook last year. Only 15% of insurance executives predicted a better two-year financial outlook last year.

This year's survey also revealed a major shift in the way executives view market conditions. More than half of the participants said they expect commercial lines prices to remain flat or decline over the next six months; and only 4% said they thought rates would firm slightly. Last year, 55% respondents said they believed the market was hardening.

“Again, this is driven by the fact that the surplus has really come back, and people just don't see rates hardening anytime soon,” Mr. Vasturia said.

Looking at the issues facing their own companies, 66% of participants ranked maintaining underwriting discipline and price adequacy as the most critical issue facing their company, up from 60% in last year's survey. “The fundamentals are very important, and it reflects the competitiveness of the marketplace. Executives know that, given the current environment, the actual underwriting and claims handling really has a lot to do with driving results going forward,” he said.

Ranking second, 41% cited “developing your strategy” as the most critical issue, while 38% cited “managing your cost structure.”

In addition, 38% of participants cited “attraction and retention of professional talent” as the most critical issue facing their company—a revealing result, Mr. Vasturia said, because it's the first time that the issue has ranked among the top three in results for that section of the survey.

Multiple responses were permitted in the survey.

“It tells us people are starting to understand the demographics of the industry and they are starting to take steps to address” the potential talent crunch facing the industry, he said.

On areas of improvement, 43% of participants ranked marketing as the top area, while 36% cited strategic focus, and 29% cited policy processing. “The marketplace is so competitive that companies are doing everything they can to retain market share,” he said.

Copies of the survey are available at Munich Re America's website at www.munichreamerica.com.