Fitch: No Imminent Pricing Freefall In '05

Mr. Auden predicted that underwriting profitability is more likely to deteriorate going forward as market pricing shows signs of softening. However, he added, the aggressive pricing environment of the late 1990s is unlikely to return in the foreseeable future. "Pricing is not showing signs of an imminent freefall," Mr. Auden said.

Mr. Auden noted that currently, Fitch has a 'Stable' ratings outlook in the property-casualty personal lines, commercial lines and the reinsurance sector. The ratings outlook for commercial lines and reinsurance was upgraded from "Negative" to "Stable" in July 2004, while the personal lines outlook has been "Stable" since Jan. 2002.

"The ratings outlook for commercial lines and reinsurance considered pricing conditions that have been favorable over a wide spectrum of the market," Mr. Auden said.

Regarding pricing, Mr. Auden observed that at this point and time, it is evident that the pricing cycle has peaked.

"The Council of Insurance Agents and Brokers' third-quarter survey shows a 5.9 percent average decline in commercial-lines pricing," he said. "This represents a third consecutive quarter that the index has declined."

But although pricing is likely to continue to show cyclical deteriorations in the future, an "overly aggressive" pricing environment won't return anytime soon.

The "Stable" ratings outlook, Mr. Auden said today, is also based on Fitch's view that the p-c industry's reserve position, although still estimated to be deficient, has improved moderately and that the estimates of reserve deficiencies for individual companies are better incorporated into ratings.

On the personal-lines front, the outlook continues to reflect favorable pricing conditions as well as the fact that personal-lines insurance is a shorter-tailed business, with less reserve- and litigation-related uncertainties than commercial lines. This consideration is somewhat offset, though, by inherent catastrophe-related risks in the homeowners' market as shown by recent events, Mr. Auden said.

In 2005, some of items to consider include market pricing, reserve adequacy and the rash of legal and regulatory investigations facing brokers and insurers, according to Mr. Auden.

"The market has been confronted with great uncertainty regarding the impact of the investigation of the insurance industry," he said.

While it is unclear how widespread the behavior related to these allegations is within the industry, Mr. Auden said the results of this probe are likely to have far-reaching implications for the commercial insurance distribution process going forward, and may also lead to changes in other p-c insurance business practices and regulatory procedures as well.