S&P: Personal Lines To Remain Firm
NU Online News Service, Dec. 8, 10:50 a.m. EST--Fundamentals remain strong for U.S. personal lines insurance carriers, according to a Standard & Poor's Ratings Services report.[@@]
New York-based S&P said the strength of the market is reflected in the rating agency's decision to retain a stable outlook on the personal lines sector as well as the improved outlook distribution for personal lines insurers.
"Although earnings prospects for the first six months of 2005 appear favorable for the personal lines sector with earned premium growth, continued declining loss frequency, and lower unfavorable reserve development leading to improved profitability--signs of increased competition suggest the operating environment for this sector was approaching a cyclical peak in 2004," noted Polina Chernyak, S&P's credit analyst.
In the past four years, "personal lines insurers have managed to turn adversity into strength" after a period of "weak underwriting results and investment losses" strengthening the line through sharpened pricing and risk management, she added.
Despite increased competition and heavy catastrophe losses in 2004, major personal lines players are expected to remain focused on profitability and a disciplined underwriting approach. But the trend toward stronger pricing and higher premiums is not vigorous enough to carry the sector to a positive ratings outlook, S&P said.
Looking ahead, S&P said that perhaps the biggest constraint on creditworthiness in the sector in 2005 could be the possible return to a less-disciplined approach to operating results as earnings from investments increase, providing a surplus to cushion against underwriting losses. The biggest question is whether or not the major national players, with the competitive advantage of being able to enter new markets, will stay disciplined with less pressure to do so. So far, the answer seems to be yes, S&P declared.
The report is available to subscribers of S&P's RatingsDirect at www.ratingsdirect.com. Non-subscribers can purchase a copy of the report by calling (212) 438-9823 or by sending an e-mail to [email protected]. More information on S&P is available at www.standardandpoors.com.
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