Fitch Says Personal Lines will Fare Better than Commercial

January 15, 2003

Highlighting the questions on profitability and reserves, Fitch Ratings reports that the commercial line and reinsurance sectors of the domestic property/casualty industry faces greater uncertainty than personal lines, according to a new report published by the ratings agency.

In its industry outlook, Fitch announced that its Outlook for the commercial lines and reinsurance segments is Negative and for the personal lines segment is Stable. The outlooks are unchanged from the previous year.

“Pricing has improved for personal lines of the P&C insurance industry, such that rates are increasing at a faster rate than loss costs, and this trend should continue in the near term,” Jim Auden, senior director, Fitch Ratings, said. “In the commercial and reinsurance segments of the P&C insurance industry, Fitch is looking for sustainable profitability improvement and diminished reserve deficiencies before shifting to a Stable Outlook.”

The new Fitch report includes an overview of the major events and trends in the P&C insurance industry during 2002 as well as an outlook for 2003. Fitch identifies major events that significantly impacted the U.S. P&C insurance industry in 2002, including the events of Sept. 11, the enactment of terrorism reinsurance legislation, and further deterioration of the investment climate. Other developments of note include the continuation of adverse reserve development woes, the continuing materialization of asbestos related losses, and a stagnant mergers and acquisitions market.

“The property/casualty industry is expected to record the largest one year favorable swing in underwriting results in 2002 as measured by the combined ratio,” Auden continued. “This change reflects sharp increases in premium rates and implementation of more conservative underwriting practices across all business lines. Further, the change in underwriting performance reflects significantly lower insured catastrophe losses as 2002 was a rather benign year, while 2001 was marked by the tragic events of September 11, producing the highest catastrophe losses recorded in a single year.”

The new Fitch report titled ‘Review & Outlook: 2002/2003 Property/Casualty Insurance,’ is available on Fitch’s web site at ‘www.fitchratings.com’

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