S&P’s: Improve pricing on commercial lines or downgrade sector

If evidence continues to mount in the next six months that North American commercial insurers will not be able to avoid another price war, Standard & Poor’s (S&P’s) may revise the sector outlook to negative.
Barring a major negative “surprise” in December, 2007 earnings for commercial lines companies will approach the record level achieved in 2006, S&P’s RatingsDirect says.
“Although companies are reporting strong underwriting results, in large part because of another exceptionally low year for hurricane losses and the decline in adverse prior-year reserve development, we believe that the margin compression on business written in 2007 will become more evident in 2008,” S&P’s said.
“It is primarily for this reason that S&P’s is maintaining its stable outlook on the U.S. commercial lines sector.”
The industry is still a long way from the rate inadequacy of the 1990s, it continues. “However, we are less confident going into 2008 than we were going into 2007 that the property/casualty industry will be able to break out of its historical underwriting cycle trend of vigorous price competition during soft market periods and engineer a soft landing.”