Despite Sour Economy, Best Sees P-C Sector As Stable

A.M. Best Co. said despite the growing economic storm clouds, it is maintaining its stable outlook for the personal lines segment for property-casualty insurers for 2008.

Richard Attanasio, an analyst for the Oldwick, N.J.-based rating firm, said he is basing his outlook on continued operating profitability for personal lines carriers, as well as their strong balance sheets and anticipation of ongoing underwriting discipline.

Events that could potentially hurt the sector include the possibility of irrational market-based pricing decisions, catastrophes and regulatory mandates, Mr. Attanasio said in the report written with Anthony Diodato and Rachelle Morrow.

But despite these risks, Best remains cautiously optimistic with regard to carriers writing predominantly personal lines and their approach to pricing in this environment, the analysts said.

The reason analysts are optimistic is that although results deteriorated modestly in 2007 relative to prior years, they remained favorable due to price adequacy, underwriting segmentation, modest catastrophe losses and continued risk management initiatives, they said.

Other reasons Best analysts cite for optimism are results that are projected to remain adequate with a very modest underwriting gain in 2008 and overall balance sheet strength that remains solid following several years of robust surplus growth.

They noted that the souring economy will provide incentives for underwriters to improve their market segmentation, product differentiation and need for underwriting discipline "given the general economic environment and volatile investment markets."

Mr. Attanasio discounted the impact of soaring foreclosure due to the souring economy on personal insurers, especially the homeowner's segment.

He said Best analysts are aware that there is anecdotal evidence of arson and home damage prompted by the rising foreclosure rates, "but we don't expect impact to be that great."

He said "it is too early to see an economic trend" from the reports of damage to homes that are facing foreclosure," and he doesn't see trend "as significant from an industrywide perspective."