Personal Lines 2006 Outlook Stable, S&P Report Says

December 12, 2005

In a report published Monday, Standard & Poor’s stated that it is retaining its stable outlook for the personal lines sector for 2006, despite the losses stemming from 2005’s aggressively violent hurricane season.

The expected increase in reinsurance costs in 2006, coupled with the unwillingness of regulators to approve rate increases that companies believe to be adequate, could negatively impact the profitability of personal lines companies.

“Personal lines companies will have to enhance their risk management and underwriting practices even more, for it’s unlikely that state insurance departments, in the current political environment, will want to approve high rate increases, especially in the affected states,” noted Standard & Poor’s credit analyst Polina Chernyak.

Still, according to the report, titled, “2006 Outlook: Personal Lines Insurance Sector Remains Stable Despite Hurricane Losses,” results are likely to remain strong in 2006. Generally adequate pricing, prudent underwriting practices and operational efficiencies inherent in the unearned premium reserve at year-end 2005 (excluding catastrophe) will continue to benefit underwriting results in 2006.

Also, moves over the past few years to improve enterprise risk management and increase the sophistication of its pricing structures will keep results strong.

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