At the midpoint of 2006, many commercial insurers are generating exceptional earnings, according to an article published by Standard & Poor’s Ratings Services. The article, which is titled “U.S. Commercial Lines Midyear 2006 Outlook: Sector Enjoying Exceptional Earnings,” says these companies’ balance sheets are in the best shape since the late 1990s, when the industry had its last pricing downturn. S&P is maintaining its stable outlook on the domestic commercial insurance segment for the rest of the year.
If current earnings and capitalization trends continue, more companies could be reviewed for revisions to positive outlooks before the end of this year. S&P expects few rating or outlook changes before then. Positive outlooks, however, do not necessarily mean positive rating actions, according to S&P. That, ultimately, would depend on whether the strong earnings trends last into 2007 and whether the industry implements a longer-term, or permanent, backstop for catastrophic terrorism events.
S&P remains concerned about whether and how fully commercial insurers have captured catastrophe exposure in their risk mitigation, capital planning, and pricing decisions. In the near term, the possible impact of a third severe hurricane season on primary commercial lines writers remains a concern as well.
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