SEATTLE--The outlook for the property-casualty insurance sector appears good for the next six months, an analyst with Standard & Poor's said after meeting with insurers at a conference here.

However, Thomas Upton, S&P's property-casualty team leader, said that while there is a good feeling in the industry after an easy hurricane season, analysts have a concern that insurer casualty rates could start drifting down with growing speed.

Another concern is that competition may overheat in the casualty sector, and that adequate terms and conditions will be compromised.

Mr. Upton also noted a worry that regulators may intervene on pricing if insurers continue to enjoy an absence of catastrophes.

Additionally, the rating firm is wary about the possibility that there might not be renewal of the federal Terrorism Risk Insurance Act, which provides a government backstop in the event of attacks inflicting super-catastrophe losses.

In reviewing insurer capital strength, Mr. Upton said that changes in frequency estimates by catastrophe modelers have led them to put an increased charge into their assessment.

Discussing another aspect of the market, he said the interest of newer, short-term investors in such offerings as catastrophe bonds and reinsurance sidecars is being generated not only by good returns in the current environment, but because they offer investments that are negatively correlated with their other risks.

However, he believes that "if property-cat rates drop, at some point they would drop out."

Mr. Upton said the presence of such investors has been healthy for the marketplace, adding that even if they were to drop out due to falling prices, if catastrophe rates rebound, these same investors would return.

"These unusual instruments are a very positive thing," Mr. Upton commented, adding that they would only be viewed as a concern if a reinsurer became excessively dependent on them. However, he was quick to note that he was unaware of any reinsurer that was in such a situation.

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P-C Sector Looks Good, S&P Analyst Says

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