Divergent outlooks for U.S. personal v. commercial lines in 2005: S&P

The future looks very different for U.S. personal lines insurance versus its commercial lines counterpart, according to the yearend review and outlook by Standard & Poor’s.The rating agency says that while the outlook for personal lines is stable, with earnings prospects favorable for the first half of 2005, earnings have likely already peaked in commercial lines, giving that sector a negative outlook.While competition will emerge in personal lines in 2005, the rater notes that underwriting fundamentals have remained strong through 2004, with loss frequency declining and lower unfavorable loss development. Even with homeowners’ insurers facing as much as a US$30 billion price tag for this year’s four major Atlantic hurricanes, S&P says the industry is better prepared today in terms of risk modeling and surplus levels to handle such a catastrophe.In commercial lines, however, the impact of Eliot Spitzer’s investigation into broker compensation and finite risk reinsurance, along with competitive forces, should drag the industry down in 2005. Insurers also continue to face the consequences of the inability to move legislation forward in such areas as tort reform and extension of the Terrorism Risk Insurance Act (TRIA)> Most significantly, rates in this sector have softened far more quickly than anticipated, S&P comments.