S&P: U.S. Personal Lines Insurance Sector Outlook Revised To Stable

Rates for the personal lines insurance sector continue to see improvements, according to a new report.

While pricing for the U.S. commercial lines sector continues to decline, though at a slower pace in the last two years, rates in the personal lines sector have been improving since early 2008, says Standard & Poor’s in an article titled, “U.S. Property/Casualty Insurance 2011 Outlook: Personal Lines Gets Stable Outlook, But Commercial Lines Still Negative.”

The more favorable pricing and several other factors in the U.S. personal lines market have spurred S&P to revise the outlook on the personal lines sector to stable from negative. A stable sector outlook indicates that the rating agency expects downgrades and upgrades to be relatively balanced over the next 12 months.

S&P said it will maintain its negative outlook on the U.S. commercial lines sector. A negative sector outlook indicates that the agency expects downgrades to exceed upgrades over the next 12 months. At this time, S&P expects any potential commercial lines downgrade to be no more than one notch (the difference, for instance, between ‘A+’ and ‘A’). The outlook on this sector has been negative since August 2008.

Looking ahead, the property/casualty insurers that S&P views as better positioned to succeed will be the ones with strong leaders who have learned from the period of economic turmoil, remain committed to basic fundamentals with a disciplined underwriting and risk-selection approach, and that capitalize on their competitive position. In addition, companies that are best able to model risk exposure and that have clearly defined enterprise-wide risk-management strategies and tolerances in place and the ability to articulate them will likely contribute to strong financial profiles and the ability to maintain their creditworthiness, according to the agency. The companies most prone to a potential downgrade are the ones that report significantly weaker underwriting performance than their peers, incur out-sized catastrophe losses, or suffer a material earnings deterioration from reserve strengthening or investment losses.

Source: Standard & Poor’s, www.standardandpoors.com