NEW YORK—Excess capital and a weak U.S. economy are among key factors contributing to the lingering soft property/casualty insurance market, industry executives said.

In addition, any turn in the market likely will be the result of improved economic conditions rather than a catastrophic event, one industry executive said during last week's Standard & Poor's Corp. Insurance 2010 conference in New York.

“Until the economy gets better, people are not going to pay us more for the (insurance) product,” said Thomas F. Motamed, chairman and CEO of Chicago-based CNA Financial Corp.

Mr. Motamed said brokers routinely suggest that a catastrophe is needed to end the soft property/casualty market. “They believe that will drive the market, but I don't believe that for a second,” he said during a panel discussion.

The best companies are well-capitalized right now, more so than a decade ago when a single catastrophe may have changed the market, Mr. Motamed said. Today, “companies with strong balance sheets can afford to take some hits,” he said.

New York-based S&P expressed a similar view, saying the tepid economy continues to weigh on the property/casualty sector. It also said rates will remain flat to down until the economic recovery gains momentum or a large-loss event serves as a catalyst for significant rate increases.

Due to the financial crisis, insurers have been dealing with reduced overall demand for commercial insurance—reflected in lower payrolls, fewer new business formations and increased bankruptcies—that has stalled progress on rate increases, S&P said in its midyear 2010 outlook this month.

The rating agency has maintained its negative outlook on the commercial lines sector of the U.S. property/casualty industry. The negative outlook, in place since August 2008, indicates that S&P expects more downgrades than upgrades during the next 12 months.

Excess capital, estimated to be as much as $100 billion for the property/casualty industry, likely will keep commercial and reinsurance pricing soft “for at least several years,” said Jay Gelb, managing director at Barclays Capital in New York, an investment banking arm of Barclays Bank P.L.C., who was part of another panel at the conference.

Liam E. McGee, Hartford Financial Services Group Inc.'s chairman, president and CEO, said he is starting to see “some encouraging signs” of recovery. For example, the insurer experienced rate increases for the first time in six years during the first quarter of 2010.

In addition, retention rates have improved, but “it's far too soon to call this a trend,” he warned while participating in another panel at the conference.

In an effort to manage the soft pricing cycle, insurers have focused on exercising strong underwriting discipline and reducing expenses, they said.

John N. Molbeck Jr., president and CEO of Houston-based HCC Insurance Holdings Inc., said a focus on expense ratios has helped the insurer withstand the economic crisis.

HCC's expense ratios easily run between 500 and 1,000 basis points lower than competitors, he said. “When the market gets tight, that's a lot of cash flow that we can continue to generate,” Mr. Molbeck said.

In addition, diversification geographically and by lines of business are important to help manage the cycle, insurers said.

In April, Hartford said it was restructuring itself to reignite growth, splitting its business into three units: consumer markets, commercial markets and wealth management.

“We view leveraging our capabilities as a way for us to counter what are clearly some very strong head winds,” Mr. McGee said.

CNA's Mr. Motamed noted that the best-performing companies still are reporting combined ratios in the 90% to 94% range. “So they're doing pretty well” at this point in the cycle, he said.

“They are really the bellwether of what happens in the marketplace. They will determine at what point they need to earn more for their product,” Mr. Motamed said.

Meanwhile, HCC's Mr. Molbeck cited a lack of price leadership by American International Group Inc. as another reason for lingering soft pricing.

“This is the first market in 30 years that AIG hasn't been out in front leading pricing,” Mr. Molbeck said. Previously, when AIG decided to change pricing on its substantial capacity, “the market was able to follow along. We don't have that this time,” he said.

Speaking as part of a separate panel, John Doyle, executive vp of Chartis Inc. and president and CEO of Chartis U.S., said any views on AIG's ability to lead a pricing change have been driven largely by a “theory on AIG market share.”

“This is ultimately about supply and demand,” Mr. Doyle said.