Insurance buyers can expect better coverage at lower prices as insurers continue to battle it out for market share.

"Risk managers are no doubt looking forward to another easy year with regard to limits and pricing," said Barbara Stewart of Stewart Economics in Atlanta.

"It's the same old story," said Ms. Stewart. "The talk that I hear is that if anything, the business is becoming more competitive and that pricing is becoming less and less rational. So one would think that at least on the underwriting side, it's not going to be a good year."

Ms. Stewart said that "unless the securities markets are kind" as they were during last year's booming market, insurers will have "a very tough year."

David McDonald, senior vp and chief underwriting officer at Royal Insurance USA in Charlotte, N.C., said, "There's not enough emphasis being placed on the underwriting process, pricing the product commensurate with the exposures presented. But," he added, "so long as the stock market continues to perform as it does, I don't see any fundamental change in the price of the products being sold."

Insurers and analysts shared the perception of a keenly competitive buyers' market.

"We don't see any mitigation of this intense competition that's been taking place over the last year or two in most lines," said Louis G. Paglia, senior vp and treasurer at TIG Holdings Group in New York.

While there are individual pockets of business where there are exceptions, competitive pressures will remain strong as "people turn over many more stones to find adequate business," Mr. Paglia said.

"Certainly nothing we've seen in the first two months of '97 indicates any change from the trends that were in place last year," said Patrick A. Thiele, president and CEO of the worldwide insurance operation of St. Paul Fire & Marine Insurance Co.

"Pricing remains very competitive. Renewals are being competed for very hard and, frankly, prices are coming down," said Mr. Thiele.

Among the ranks of those seeing no change in the market is Ronald Frank, an analyst with Smith Barney in New York. "I think the dynamics of the industry are going to be similar in that you're going to have continued pricing pressure across most lines of business. So in a sense you start out every year behind-to the extent that kind of activity continues," Mr. Frank said. "From there, it'll really be a function of loss costs and how they develop, which to some extent is beyond your control and beyond the ability of anyone to forecast."

Robert M. Steinberg, chairman and chief executive officer of Reliance Insurance Group in New York, said the insurer has made the same prediction each year since 1987. There has been "virtually no change in the market," said Mr. Steinberg.

Observers point to the excess capital in the industry as a reason for the market remaining competitive. "There is still ample capital among commercial carriers, and without any shocks to the industry, we don't see anything that would change the supply-demand equilibrium," said Jay Cohen, an analyst with Merrill Lynch in New York. "So on a fundamental basis, we're not looking for much change in 1997."

"The industry still has an awful lot of capital," agreed George Yonker, vp-finance at Seattle-based SAFECO Corp. "There is a lot of capital chasing a limited amount of business, and unfortunately that doesn't look real positive from a pricing standpoint," Mr. Yonker said.

The intense competition is reflected in insurers' underwriting losses. According to a Business Insurance survey of 24 major insurers, underwriting losses in 1996 deepened by 57.4%, to $6.51 billion from $4.14 billion. While this is an improvement over the 102.3% decline reported for the nine-month period by a comparable group of insurers (BI, Nov. 25, 1996), it compares unfavorably with the 20.1% decline reported at year end 1995 (BI, March 25, 1996).

Among other survey results:

Net premiums written increased 9.9%, to $91.3 billion. But excluding the results of the Berkshire Hathaway Group Inc., which has started to include the results of GEICO Corp. in its report, the remaining 23 insurers reported a 6.3% increase.

Bolstered by last year's booming stock market, insurers' investment income increased by 11.7%, to $14.62 billion. This compares with 1995's 5.2% increase.

Insurers' combined ratio deteriorated to 106.1% from 104.6%. This is an improvement over the 107% combined ratio reported by a comparable group of insurers for the nine-month period. Insurers had reported a 107.3% combined ratio in 1995.

Net income for the 21 insurers reporting this information increased 7.6%, to $9.46 billion. This compares with a 6.4% increase by a comparable group of insurers for the nine-month period and the 16.8% increase reported for 1995.

Policyholder surplus for the 24 insurers reporting this data increased 21.7%, to $81.56 billion. This is comparable to the 22.7% increase reported for the nine-month period.

The fourth quarter results held few surprises.

It "wasn't really a shock one way or another," said Gloria Vogel, senior vp at Advest Inc. in New York.

Said Smith Barney's Mr. Frank, "I don't think the quarter really showed you a sea change in one direction or another."

The fourth quarter "was pretty much in line with the previous quarters," including slow premium growth, and an increased paid-to-incurred loss ratio, said Michael Smith, an analyst with Salomon Bros. in New York.

"I think generally the quarter tended to be a little more negative than the year did, just because the fourth quarter is frequently the time to get your one-time unfavorable adjustments on the books," said John L. Ward, chief executive officer of the Cincinnati-based Ward Financial Group.

Analysts note that while last year insurers were able to take advantage of reserve redundancies to bolster their bottom line, they may not have that option this year.

"Clearly it will become difficult with each passing year for all but the strongest and best-reserved companies to continue to find redundancies in their reserves," said Mr. Frank.

"I think by definition with every passing year you're going to have less and less of that available, because pricing isn't getting any better," he added.

Mr. Cohen of Merrill Lynch agreed. "In certain lines of business, specifically workers comp, which is a very big line of business, there have been reserve releases," he said. "And it is likely that companies will not be able to benefit from these releases in the future-to the same extent, anyway-that they did in 1996 and 1995."

Another concern is that the flat to modest increases in premium growth are taking place "in the context of rising exposures," said Mr. Ward. "For the same flat dollar premium," insurers are taking on more risk, more exposures and broader coverages. "That's becoming relatively prevalent," he said, and "it adds to the concern" about this tough cycle.

"The reserve adjustments and take downs will probably go down as a theme for 1996, but the rising exposures and the flat rates may well be the theme for '97," said Mr. Ward. This year, "I would anticipate continued flat premiums and probably mediocre to slightly positive bottom line performance, and I would think it'll probably end up.*.*.slightly below the '96 level of performance" in both respects, he said.

The soft market will have even more of an effect on individual insurers this year than it did in 1996, said St. Paul's Mr. Thiele.

"Market forces will begin to overwhelm the individual company's issues and opportunities," he said. "I think in 1996, there was more of an opportunity for individual underwriting strategy and individual company actions to offset the market deterioration, and therefore there was a wider spread in terms of results in the industry. I think that's going to change in 1997, and the market will have more impact on companies' results" due to the intensity of the competition.

"I think earnings discipline is going to be the order of the day," said Mr. Smith. The lack of a reserve cushion and a paid-to-incurred ratio that runs in the mid-90s "means that there is absolutely no room for surprises."

But, he added, because this is a business of recurring extraordinary losses, "you've got to anticipate there will be surprises, there will be large losses."

The industry would need a "perfect year in order to have a decent year, and nothing in life is perfect," he said.