NU Online News Service, Dec. 13, 4:07 p.m. EST

Standard & Poor's said Friday it has revised the rating outlook for U.S. personal property and casualty insurance lines to stable from negative, pointing to more favorable pricing among the factors prompting the change.

Personal lines insurance prices have been improving since 2008, the New York-based rating agency said, contrasting the commercial lines sector where prices continue to fall.

Although price declines are slowing for commercial lines, S&P analysts expect to issue more downgrades than upgrades for commercial lines insurers over the next 12 months, which means the firm has a "negative outlook" on the sector.

The "stable outlook" for personal lines means the rating agency expects downgrades and upgrades to be relatively balanced for personal lines insurers over the next 12 months.

The rating agency said it already downgraded six (32 percent) of the groups it rates in the sector in 2010, and assigned stable outlooks to those entities.

In total, as of Nov. 15, 14 personal lines insurers rated by S&P--nearly three-quarters of the personal lines insurers it rates--had stable outlooks, compared to only eight (42 percent) at the same time in 2009.

In addition to improved pricing, S&P noted that insurers in the personal lines segment have very strong capital adequacy, and that they reported a 1.7-point combined ratio improvement in the aggregate for the six months ended June 30, 2010--to 100.8 from 102.5--in spite of increased losses.

The recently revised negative outlook for personal lines had been in place since Dec. 2008. S&P has maintained its unchanged negative outlook on commercial lines since August 2008.

As of Nov. 15, S&P had downgraded five commercial lines groups in 2010 (13 percent of the ratings universe), and 11 (30 percent) had negative outlooks.

Although S&P analysts said in an announcement Friday that they do not expect any potential commercial lines downgrade to be no more than one notch, a written report published on Friday described factors beyond pricing are fueling a negative outlook--including the possibility that reserve releases for long-tail casualty lines are concealing the soft market's full impact on profitability.

Noting an acceptable commercial lines combined ratio of 98.4 for the first half of 2010, the S&P analysts also said they "are beginning to observe a bifurcation between companies with strong and steady underwriting performance that regularly outperform industry results and those with performance that parallels the industry median.

In addition, specialty lines business is "generally superior" to that of commodity-like general commercial lines, S&P said in a written report summarizing the sector outlooks.

The report also discusses the impact of low interest rates on the p&c insurers and the potential for M&A activity in 2011, predicting renewal rights deals and specialty niche transactions of 2010 to continue in 2010.

Special Reports /

S&P Revises U.S. Personal Lines Outlook To Stable From Negative

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