Some Analysts Downgrading P-C Sector

The sector dropped in October, but now p-c shares have gained an average of 18 percent, twice as much as the Standard & Poor's 500 Index.

Mr. Cohen moved from a positive view of the industry to a neutral one and lowered his ratings on XL Capital and Chubb to "neutral" from "buy."

"These multiples have expanded since the middle of 2004 when valuations were negatively impacted by news of increasing price competition in commercial lines," Mr. Cohen wrote. "The competitive conditions have not ameliorated, but multiples have expanded."

According to Mr. Cohen, the underwriting environment should deteriorate "in a rational fashion" with slowing premium growth and gradually rising loss ratios. "Still, there is a chance that underwriting conditions may worsen more quickly than expected.

In reaction to a negative Safeco earnings forecast, Citigroup Smith Barney analyst Ron Frank downgraded the stock.

While Safeco fourth-quarter earnings beat analysts' expectations, its chief executive officer Mike McGavick warned that the company would not meet double-digit premium growth targets.

Progressive also reported earnings that beat Wall Street expectations, but analysts expressed concerns about its ability to achieve top-line growth due to increased competition.

Prudential analyst Jay Gelb wrote, "Our view is that Allstate remains the best way to play the auto insurance cycle, and its results should be more insulated from reduced expectations than Progressive or Safeco."