Conning foresees a structural change in personal lines insurance (auto and homeowners), with fewer and stronger players, and an industry that's moving away from traditional cycles with wide pricing swings.

Twenty-five companies left personal lines in the industry's last cycle, and the number could be double that amount in the new consolidation period, Bruce D. Hale, a research analyst at Conning, said in an interview Monday.

In the long run, though, a shakeout will be good for consumers because it will leave "a bunch of stable, strong, competitive companies offering good service" and will mitigate the big ups and downs in pricing over time, he said.

Conning's study, "The Emerging Shakeout In Personal Lines," says the shakeout will result from dynamics between market leaders and lagging insurers.

"We do see ourselves as more of an acquirer in this process," Joseph P. Lacher Jr., chief executive of personal lines at St. Paul Travelers, said Monday. The company has a big appetite for profitable growth, generated internally and by acquisition, he said.

Some analysts have speculated that Seattle-based Safeco could be a good personal lines purchase for Travelers, but Lacher said Travelers does not comment about what companies it might consider.

Travelers has made large investments in its personal lines business and grown that operation's nationwide staff by 25 percent a year in each of the past two years, Lacher said. It would be hard to imagine selling its own personal lines, he added.

He expects that consolidation in the industry will heat up in a couple more years, once profitability has peaked. "It's a little early to see folks bailing," he said.

The Hartford "is certainly looking to grow our property-casualty business profitably in a variety of ways," said spokesman Joshua King, who declined to elaborate.

Instead of being based on premium volume, the selection was based on underwriting profit margin from 2002 through 2004 of at least 4 percent, pricing methodology, expenses and branding effectiveness - advertising and other methods to promote awareness and sales.

Other companies, such as Travelers and The Hartford Financial Services Group, may not have met all criteria, but are close or on their way to qualifying as market leaders, Hale said.

The mammoth State Farm, for instance, was slow to adopt new pricing technology and predictive claims modeling, but is catching up and is seen as "a sleeping giant that's awakening," Hale said.

Leading insurers now can segment customers much more finely by level of risk and price policies more accurately, often having dozens of prices, depending on risk. As a result, they can "set and maintain aggressive pricing levels that will be untenable for many lagging insurers," Hale said.

In the past, the lagging insurers would have waited it out to raise prices until the leaders did. But that kind of cyclical action may not happen now, and laggards may not be able to weather the competition, he said.

Companies that sell through independent agents, such as Travelers and The Hartford, need to find ways of collaborating with agents to afford more extensive and memorable advertising than previously, he said.

The insurers that exit personal lines are likely to include companies that lack the underwriting technology to price business accurately and smaller insurers without expertise in niche markets, Hale said.

Blows from past hurricanes, such as Katrina, or future storms could also drive out some companies, although a shakeout would occur even if the past two hurricane seasons had not been so destructive, he said.

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