US commercial and personal lines given stable outlook: S&P

At long last, the U.S. commercial lines sector has seen its outlook revised by rating agency Standard & Poor’s to stable, in line with the personal lines outlook.
S&P points to a “delicate balance” between earnings growth and legacy reserving issues still hampering the commercial lines industry.
2003 saw 10.7% premium growth in commercial lines, with S&P projecting strong results through the first half of 2005 for most companies, although concerns remain over early softening of some segments.
“The industry’s fate hangs in the balance. Will it adhere to the newfound religion of pricing discipline, which would secure its future, or will it revert to historical form, sacrificing long-term profitability for the instant gratification of top-line growth, which would squander its future?”
At the same time, reserving shortfalls and no end in sight to the rising litigation trend keep commercial writers on the edge, along with rising new hazards that are not yet on the radar screen.
The fate of the personal lines segment is less tenuous, with a rebounding homeowners’ market leading the charge. The loss ratio in homeowners in 2003 came in at 58.7%, down from 68.5% in 2002, capping a 30% drop since third quarter 2001.
S&P also speculates there is further room for price increases in the line, although auto pricing is flattening more quickly, expected to peak in 2004.
Personal lines insurers have thus far maintained pricing discipline, S&P adds, with an absence of new competitors on the horizon in this line.