U.S. personal lines insurance sector is at a critical juncture, according to an article published by Standard & Poor’s Ratings Services. The article, which is titled “2008 U.S. Personal Lines Outlook: A Quiet Year Fuels Profits, Though Softening Prices Loom,” says that with the shift to soft market conditions nearly complete, companies in this sector are pushing hard to achieve profitable growth and preserve their competitive positions while maintaining pricing and underwriting discipline.
“We believe pricing will continue to support healthy underwriting returns and solid earnings in 2008–as long as catastrophe losses remain normal,” S&P wrote.
“However, we’re concerned about the long-term sustainability of earnings and returns, as we don’t believe the sizable profit margins of the recent past will continue because of intense rate competition, especially in the auto market, and less available new business growth.” Carriers could be tempted to discount product offerings and loosen terms and conditions to maintain their competitive positions and market shares, as they did during the last soft market from 1987-2001, the report says. “However, the ratings on companies that do so–as well as those that poorly manage natural catastrophe exposure, suffer losses worse than peer averages or outside of Standard & Poor’s expected tolerances, or show greater legal exposure because of claims practices that are outside of industry norms–could come under negative pressure.”
The outlook on the U.S. personal lines sector will remain stable as long as carriers remain disciplined and committed to adequate risk-adjusted pricing, S&P says. “A stable outlook reflects our expectation that for the coming six to 12 months, downgrades and upgrades will be balanced, and the number of rating actions will be very low.”
Source: Standard & Poor’s,
Was this article valuable?
Here are more articles you may enjoy.