NU Online News Service, June 17, 3:14 p.m.EDT

An industry analyst using a proprietary scoring method forproperty and casualty insurers says the first-quarter combinedscore for the top-100 commercial-lines writers reveals the firstindication of a possible turn in six years.

In a research report published last week, ALIRT InsuranceResearch said its composite ALIRT score for the top-100 writers ofcommercial-lines business fell below 50 in the 2011 firstquarter.

David Paul, a principal for the firm in Windsor, Conn., explained to NU earlier this year that ALIRTscores—derived every quarter from an analysis of operating and investment ratios as well as otherfinancial-strength measures—range from 0-100, with higher scoresassigned to stronger insurers. The 10-year median industry score isright in the middle—at 50.

A composite score below 50 may act as a leading indicator of aturn, Paul says, explaining that the score can be viewed as a “paingauge” that can highlight the point when insurers “begin to getfearful about balance-sheet deterioration.” When the fear sets in,they may “draw firmer 'lines in the sand' as concerns pricing,”ALIRT says in its 2011 first-quarter analysis.

A graph in the report shows that the score—which capturesfinancial changes like surplus losses, rising combined ratios,reserve hiccups and investment risks—has been trending downwardsince early 2007, but has been above 50 since the middle of 2005.In contrast, back in 2001, the composite was closer to 35 as themarket turned from soft to hard.

Spotlighting another positive development—from theperspective of insurers—the ALIRT first-quarter analysis notes thatnet and direct premiums written for the P&C composite of 1,600insurers show marked upticks compared to last year's first quarter.Net premiums rose 3.6 percent over the prior first-quarter, anddirect jumped 3.5 percent.

The report notes that the upward trends were likely driven byexposure-unit growth, since pricing surveys continue to showdeclining year-over-year rates.

Growth in exposures—demand—“combined with potentialexhaustion on the part of underwriters to chase price ever lower…isa positive development,” ALIRT concludes.

“While it's too early to tell if the March 31, 2011 composite[commercial] ALIRT score will hold for full-year 2011, heavycatastrophe losses…, continued volatile capital market and economicconditions, and [the] seventh year of soft-market pricing may justprove the catalyst to begin steering the industry toward a pricingturn,” the report says.

The report also reveals changes in some of the key financialitems that go into the scores, including combined-ratio increasesand loss-reserve changes.

While the accident-year combined ratio for the 2011 firstquarter was unchanged from the 2010 first quarter—standing at 107.0for the P&C composite (including personal lines and commercialinsurers)—$3.6 billion in loss-reserve releases in this year'sfirst quarter helped pull the calendar-year combined ratio to downnear breakeven (100.5 for this same group of insurers).

The report notes that the $3.6 billion takedown in the firstquarter is roughly equal to the releases taken for 12-month periodsin recent years. According to ALIRT, composite reserve releasesaverages $3.7 billion per year since 2006.

ALIRT also notes that the three-month 2011 takedown in the firstquarter came largely from personal-lines companies foraccident-year 2010.