The good news for personal lines insurers and the bad news for the commercial and reinsurance sectors came as the analysts discussed their 2002 Mid-Year Outlooks, which were first released at an S&P Insurance Conference in early June.

While S&P's outlooks for the commercial lines and reinsurance segments are negative, the personal lines sector carries a stable outlook from S&P.

Explaining the "less negative," but not yet bullish view of personal lines insurance, Robert Partridge, a managing director, said, "I don't see the prospect of any significant overall ratings movements in personal lines during the next 18 months."

"Just as we don't downgrade everybody when times get tough, we're not going to upgrade everybody when times get better, especially during the early portion of a recovery," he added.

During the down cycle, which in S&P's opinion has just ended, he said that S&P lowered "a number of ratings" for personal lines insurers, including those of State Farm, Farmers and Nationwide, while affirming others, such as Allstate and USAA, in spite of the market conditions.

Asked to discuss "toxic mold losses," which were part of the reason for the downgrade of State Farm from "triple A" to "double-A-plus" earlier this year, Mr. Partridge responded: "I'd like to soft pedal that adjective, ?toxic.'"

"This is a personal lines issue, not a commercial or a liability issue," he said, seemingly reserving the term "toxic" for commercial liability issues only.

"It has not been determined whether or not mold is going to produce a high volume of losses" that would fall under "the normal liability covers, namely D&O, general liability, workers' compensation, products liability and health care coverages."

While noting that "there is room for [commercial liability] claims to develop, he said, "at this point" mold claims have fallen under personal lines property covers only?and mainly in Texas.

"We believe that these property claims for mold damages have peaked," he said. He also said that while the task of working through all the claims reported in 2001 may still be troublesome for the "biggest insurers" going into 2003 and 2004, losses in 2001 were the result of policy defects that are now being repaired with exclusions. In particular, the State Farm policy form "did not exclude the insurer from liability for mold damages from causes that were chronic," like unrepaired pipes, he said.

Analyst Fred Sklow, among a host of concerns keeping S&P's outlook negative for the commercial lines sector, cited the potential for mold as a commercial liability at some point in the future.

The main concerns for the commercial and reinsurance sectors, however, were lingering reserve adequacy issues, analysts said. Analysts also expressed the view that while prices are rising in the two sectors, commercial insurers and reinsurers are still playing catch-up after a decade of rate inadequacy, as new issues, like a "ballooning trend" of professional liability losses, present further challenges.

On the personal lines side, Mr. Partridge was more optimistic about the potential effects of pricing improvements. Noting that the best way to measure pricing adequacy is by looking at loss ratios, he asserted that loss ratios had gotten better for most personal lines covers in the last year, including automobile bodily injury, property damage and collision coverages. Only homeowners got worse, he said.

"We believe that the trends will continue, except in homeowners, where the [deteriorating] trend will reverse itself," he added. He said he based his belief on homeowners rate filings of the companies that S&P rates and the prospect of better weather in 2002.

"2001 was third worst year for catastrophes," he said, noting that a good weather year in 2002 could reduce the homeowners loss ratio by 6-7 points overall.

Overall, S&P is estimating that pricing adequacy will reduce the personal auto combined ratio to 103.5 in 2002 from 108.5 in 2001, and that homeowners may improve to 112 from a 122 ratio last year.

S&P's Outlook Reports are available on the firm's Web site at www.standardandpoors.com/Forum/RatingsCommentaries/Insurance.