"The market has improved to a degree that organizations with an appropriate geographic mix, and strong risk selection and pricing expertise can report good underwriting results in the current environment," he added.

Fitch's latest report charts a severe decline in profitability that began in 2000 and continued into 2001.

The firm said the industry was hurt when previously favorable trends in loss severity reversed at the same time that major participants were defending their shrinking market share through aggressive price competition.

Based on this performance, insurers have shifted their focus from maintaining market share to improving profitability, and have increased premium rates notably in each of the last two years, Fitch said.

However, the report found that these price increases at least partially have been offset by increased loss severity and declining investment income.

"For companies weighted more towards the auto insurance line, factors that are likely to influence ratings going forward are underwriting results that are significantly better or worse than peers, and an ability to maintain or improve capital adequacy levels to keep up with revenue growth," Mr. Thorpe said.

Fitch noted that since auto insurance is a relatively short-tailed segment, investment returns on loss reserves are not as significant a factor in determining profitability for auto writers compared with other longer-tailed lines.

The rating firm said, however, that recent declines in interest rates increase the imperative for companies to write at a significant underwriting profit in order to earn an adequate return on capital in auto insurance.

A copy of the report, entitled: "Automobile Insurance 2002--Shifting Into Forward Gear," is available from Fitch's Web site at www.fitchratings.com, or from the Ratings Desk at 1-800-893-4824.