S&P Revises Outlook on U.S. Personal Lines P/C Industry to Negative

July 11, 2001

Standard & Poor’s revised its outlook on the personal lines property/casualty sector (i.e., home and auto insurance) of the U.S. insurance industry to negative from stable.

In conjunction with this rating action, S&P revised its outlook on Prudential Property & Casualty Insurance Co. of Indiana, the State Farm group of companies, and the members of Farmers Insurance Exchange to negative from stable.

The revised sector outlook reflects the steady deterioration in the industry’s earnings and capitalization, which was caused by a combination of market-share-driven competition and an increase in loss costs related to bodily injury and physical damage claims. S&P stated it expects these trends to continue, which will make it increasingly difficult for insurers (State Farm, Farmers, and others) operating in this sector to achieve historical profit margins.

Similarly, the capital adequacy of individual insurance groups is also expected to weaken. As a result, S&P said it expects its financial strength ratings on insurers operating in this sector to decline in the short to intermediate terms.

A more detailed analysis of the U.S. personal lines property/casualty sector is available on RatingsDirect, S&P’s web-based credit analysis system. The article will also be available on S&P’s website at standardandpoors.com.

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