S&P Negative On Commercial Sector

By Steve Tuckey

NU Online News Service, Dec. 21 11:28 a.m. EST?The costs of scandal, as well as peaking insurance rates, have made commercial lines the sole property-casualty sector to have its outlook downgraded for 2005 by Standard & Poor's.[@@]

The New York-based rating firm said it is maintaining a stable outlook for personal lines and has upgraded the reinsurance sector outlook to "stable" from "negative."

S&P analyst John Iten said the market forces of greatest concern are the civil and criminal charges by New York Attorney General Eliot Spitzer that commission payments to insurance brokerage Marsh were part of a bid-rigging scheme with major insurers.

In addition, the failure of Congress to reform the asbestos claims process and to extend the Terrorism Risk Insurance Act will add to the sector's challenges next year, S&P said.

The firm said pricing competition has slowed premium growth more quickly than anticipated. It said the combined ratio will drop from 100.1 this year to 97.9 next year.

"This was the peak year for pricing," said S&P managing director Mark Puccia. "Next year will be for earnings."

Fundamentals remain strong for the personal lines sector, according to S&P.

"Although earnings prospects for the first six months of 2005 appear favorable for the personal lines sector, signs of increased competition suggest the operating environment for this sector was approaching a cyclical peak," said S&P analyst Polina Chernyak.

Ms. Chernyak also said she does not believe that the four hurricanes of 2004 will have a sufficient impact to promote nationwide increases, as rates are determined locally.

The homeowners' market should experience single-digit price increases next year, while the auto market will become more competitive, S&P noted.

The reinsurance outlook was upgraded from "negative" to "stable" due to profitability margins that are expected to remain reasonable next year despite declining profit margins.

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S&P Negative On Commercial Sector

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