It's a down market for investors with holdings in the insurance and reinsurance industry according to analysts of the sector.

Lehman Brothers is bearish on the outlook for property casualty insurers stock performance this year. Standard & Poor's rating agency also revised its outlook on the global reinsurance industry to negative for 1999 and 2000.

The outlook holds in general for Bermuda market companies, which have been particularly aggressive in the past two years in attempting to diversify and grow as pricing pressures continue to affect profits.

In Lehman's report on the industry, the investment firm forecast that there won't be any improvement in commercial lines pricing, and investors should limit their portfolio exposure to the group with a focus on personal lines carriers.

The firm is maintaining a buy rating on Progressive, and an outperform outlook on Allstate and AIG.

"Given the fragmentation of the industry and its excess capital position, we find it hard to believe that insurance customers will be forced to bear significant rate hikes,'' Lehman stated in a report. "As a result, we continue to believe that investors should limit their exposure to the group with a focus on personal lines carriers.'' The Standard and Poor's outlook is also based on faltering premium revenue.

The outlook for the industry is a reversal from the last few years. Since the catastrophic losses in 1993 cleared out excess capital from the industry, reinsurers have averaged about 12 percent return on revenue.

"However, in the next couple of years, a confluence of pricing pressures will begin to extract increasing loss costs from reinsurers' bottom lines,'' Standard & Poor's stated.

The agency forecast that the industry will post combined ratios deteriorating to 105 to 106 percent over the next two years. The ratio refers to the ratio of claims paid out to premium revenue. The companies will then have to rely more heavily on their investment income to make up the difference and more.

Standard & Poor's has an even more dismal outlook for reinsurers operating overseas.

"Outside the US, the trends are similar with international reinsurers experiencing an increase in combined ratios estimated to grow two percentage points in 1998 and another one to two percentage points in 1999,'' the agency stated.

The industry has experienced strong capital growth since 1994. The capital base will limit the level of downgrades in company ratings. Upgrades of reinsurance companies outpaced downgrades nine to six in 1998 as reinsurers continued to build capital and expand distribution systems.

Those acquisitions may actually be masking an underlying deteriorating trend within the market.

"Reinsurers closed out 1998 with mixed results as generally declining premium rates and rising property losses were offset to varying degrees by acquisitions which temporarily masked deteriorating trends within the reinsurance industry,'' S&P stated.

The agency estimated global non-life reinsurance premiums written declined nearly six percent in 1998 and are expected to continue falling this year.

"Consolidation within the insurance industry has also reduced demand as large insurer's acquisitions of smaller insurers provided an internal source of capital,'' S&P stated.

In a tentative outlook, S&P forecasts that the unpredictability of claims arising from the Year 2000 computer problem might lead to some discipline in 1999 as insurers begin to hold the line.

"Last year was still a good year for the reinsurance industry with returns near the ten year average,'' S&P concluded. "The record years of 1996 and 1997 are viewed as unsustainable and indicate more the absence of catastrophe losses than good underwriting.''