S&P’s Notes Negative Trends may turn around

December 19, 2001

Negative trends in the U.S. Personal Lines Insurance Industry, such as the deterioration in earnings, capitalization, and pricing adequacy, could begin to see a turn around in 2002, Standard & Poor’s points out in a new report.

According to Charles Titterton, a director in S&P’s insurance ratings group and author of the report, in 2002, these unfavorable trends could begin to reverse, as a substantial and growing segment of companies have seen enough deterioration of their capital positions that their managements could soon decide that they must hold the line on price or even increase pricing, even at the cost of a considerable reduction in persistency and market share. Titterton adds that such collective decision-making could increase demand for the remaining participants to the point where they can begin to raise price above cost trends.

The report, Personal Lines Outlook 2002: Benefits of Market Turnaround Diminished by Continued Heavy Competition, identifies the key trends that will form the personal line segment of the U.S. property/casualty industry in 2002.

According to the report, unlike their commercial lines counterparts, personal lines insurers were almost completely unaffected by the Sept. 11 terrorist attacks.

However, the industry has had problems of its own to deal with. Although times proved very prosperous for most personal lines insurers in the early and mid 1990s, since 1998 the personal lines sector has witnessed steady deterioration in earnings, capitalization, and pricing adequacy.

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