The number of property-casualty companies placed under regulatory supervision continued to fall in 2006, according to a recent Standard & Poor's report.

In 2006, eight p-c companies came under regulator supervision compared with 10 last year and 13 in 2004.

Vesta Fire Insurance Corp. and its affiliates represented the largest failure in 2006, as measured by total assets of $432 million at year-end 2005.

Last year posted the fewest such supervision actions in ten years, prompted by strong earnings and a benign catastrophe year, the report said.

S&P's outlook on commercial liens remains stable with good 2006 balance sheets and strong earnings.

Analyst Kristina Koltuniki said emerging challenges to the sector include possible price softening and capital adequacy.

"We expect the commercial lines sector's combined ratio for 2006 to be close to the p-c industry's expected average for 2007, between 94 and 95," Ms. Koltuniki wrote.

Growth in portfolio size and net investment income is expected to come from strong underwriting cash-flow. "Many balance sheets are also in their best shape since the late 1990s, when the industry entered its last cyclical pricing downturn," she wrote.

As for reserve deficiencies, "although substantial progress has been made, industrywide loss reserve levels for accident-year 2001 and prior continue to generate deficiencies with more recent accident years helping to mitigate the full earnings impact," she wrote.

Personal lines companies enjoy a stable rating environment due to continued enhancements in Enterprise Risk Management such as improved catastrophe modeling and more sophisticated pricing structures, according to S&P.

"Looking forward, slowing top-line growth due to competitive pricing pressures, which in turn has slowed the growth of policies in force, remains a challenge for personal lines segment at least through 2007," the report said.

Homeowners' rates will remain firm for 2007, as personal lines insurers brace for a long period of potentially heightened catastrophe risk, it added.

In addition to Vesta, other p-c failures--which S&P defines as any form of regulatory supervision order--include the following:

o Florida Preferred Property Insurance Co., which posted a combined ratio of 163 in 2005 and 315 the previous year.

o Municipal Insurance Company, placed under liquidation by the California Department of Insurance.

o Southern Family Insurance Company, a wholly owned subsidiary of Poe Insurance Holdings LLC, subject to regulatory action by the Florida Office of Insurance Regulation

Special Reports /

P-C Insurer Failures Down In '06

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