U.S. Personal Lines Sector Remains Strong With a Stable Outlook, Report Says

December 7, 2004

Fundamentals remain strong for U.S. personal lines insurance carriers, according to a report published by Standard & Poor’s. This is reflected in S&P’s decision to retain a stable outlook on the personal lines sector as well as the improved outlook distribution for personal lines insurers.

“Although earnings prospects for the first six months of 2005 appear favorable for the personal lines sector–with earned premium growth, continued declining loss frequency, and lower unfavorable reserve development leading to improved profitability–signs of increased competition suggest the operating environment for this sector was approaching a cyclical peak in 2004,” noted credit analyst Polina Chernyak.

“Personal lines insurers have managed to turn adversity into strength over the past four years, emerging from a period of weak underwriting results and investment losses all the stronger for having sharpened pricing and risk management,” Chernyak added. Despite increased competition and heavy catastrophe losses in 2004, major personal lines players are expected to remain focused on profitability and a disciplined underwriting approach. But the trend of stronger pricing and higher premiums is not vigorous enough to carry the sector to a positive ratings outlook.

Looking ahead, perhaps the biggest constraint on creditworthiness in the sector in 2005 could be the possible return to a less-disciplined approach to operating results as earnings from investments increase, providing a surplus to cushion against underwriting losses. The biggest question here is whether or not the major national players, those with the competitive advantage of being able to enter new markets, will stay disciplined now that there is less pressure on them to do so. So far, the answer seems to be ‘yes.’

The report is available to subscribers of RatingsDirect, Standard &
Poor’s Web-based credit research and analysis system, at
www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may
purchase a copy of the report by calling (1) 212-438-9823 or send an
e-mail to research_request@standardandpoors.com. Ratings information can
also be found on Standard & Poor’s public Web site at
; under Credit Ratings in the left navigation bar,
select Find a Rating, then Credit Ratings Search. All Standard & Poor’s
research information is accessible for 24 hours after publication on the
public Web site. Members of the media may request a copy of this report by
contacting the media representative named above.

Media Contact:
Marc Eiger, New York, 212-438-1681 marc_eiger@standardandpoors.com

Analytical Contacts:
Polina Chernyak, New York, 212-438-7179
Thomas Upton, New York 212-438-7249

Standard & Poor’s, a division of The McGraw-Hill Companies (NYSE:MHP), is the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 6,000 employees located in 21 countries, Standard & Poor’s is an essential part of the world’s financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.

Key Contacts:

Americas Media Relations: (1) 212-438-6667
media_ relations@standardandpoors.com
Americas Customer Service: (1) 212-438-7280
research_request@standardandpoors.com

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