While there was a moment of levity when an analyst struggled with a technical goof in a PowerPoint presentation, the tone of the session was a generally somber one.

The events of 2001 and 2002 were "bad news for commercial insurers and reinsurers," said Alan G. Murray, vice president, senior credit officer, property and casualty, for Moody's Investors Service in New York. "There's clearly been a slope," he said.

Trends, he remarked, include improved pricing, tightened terms and conditions, and rising estimates of asbestos liabilities. "There is a war going on between the legal and medical views," he said.

On the financial side, reserve adequacy "went from bad to worse" for commercial insurers, he said.

Mr. Murray remarked that rate increases of 50 percent are not adequate to offset rates decreased by 50 percent. "You need 100 percent rate increase just to get back to adequacy, and that's why we think it's a slow recovery."

He said that only about one-quarter of the companies have adequate-to-better or excess reserves. "Personal insurers tend to populate that group," while commercial insurers "tend to be capital deficient," due to reserve inadequacies and catastrophe exposures, he added.

Paul F. Sherbine, managing director, market information group, for Marsh in New York, said the company subscribes to all four ratings agencies because, "while they're looking at the same thing, they're coming at it from different angles."

He warned that even some companies with an "A" rating "will go down" because emerging issues such as mold, asbestos and pollution can pop up at any time.

What can you do about it? "You've got to look at trends in the ratings" over several years, including company downgrades, he said.

Mr. Sherbine urged insurance buyers to "take the time to read the rationale behind the ratings." He continued that even though "you might not feel like it right now, you're still the customer here. You're the ones buying the product."

He said to ask questions of an insurance company that has been downgraded, "And if you don't get a good answer, ask the CFO."

Monitoring your insurance providers is no longer an annual exercise, he said, "it's constant." Some clients, he said, "set up an Excel spreadsheet and list every one of their insurers," tracking management changes as well as any changes in direction or coverage.

Another tool his clients are using is "a pie-chart by ratings, highest to lowest." With this tool, risk managers can determine "where your program sits on a relative rating basis," and they can more easily illustrate credit exposures to the CFO or treasurer, he said.

He explained that the three determinations in the past were "price, coverage and security," but "today you can only pick two." He said "If you're going for a triple-A paper today, you are going to pay for it, so be prepared to explain that on renewals."

Keith M. Buckley, chief financial officer for Fitch Ratings in Chicago, said the company's methodology is similar to other ratings companies. Its philosophy, however, is "historically less model-driven" than some rating agencies, putting more emphasis on "subjective judgement."

He said its focus "is to be among the first market observers in identifying changes within a company, either on the negative or positive side."

Hot topics affecting ratings, he observed, are asbestos, finite reinsurance, loss reserves and the market cycle, which he explained isn't yet over.

"We want our ratings to go through a normal cycle, but what's a normal cycle?" he asked. He said the industry has been through a 10-year soft market followed by a hard market, "but we don't know how long it's going to last."

Mr. Buckley said it's critical to understand how the hard market endures and "whether ratings levels overall are at the right spot or need to come down. He said if the cyclical pattern of "10 years of a soft, a short hard, and then a long soft," is repeated, "a lot more ratings are going to be coming down."

Mr. Murray said that Moody's emphasizes profiles on holding companies, "to the extent to which holding companies use leveraging and financing as part of the capital of their subsidiaries."

He said there has been a "net trend of downgrades," and added that most of the upgrades in the late 1990s were related to mergers and acquisitions. "It's continued to be that way, although there have been some personal lines activities."

Some reasons for upgrades, said Stefan Holzberger, senior financial analyst for A.M. Best Company in Oldwick, N.J., are a strengthened capital position, conservative premium leverage, favorable earnings, a conservative loss reserve position, consistent reserve for redundancies as well as for deficiencies, catastrophe mitigation reflecting a conservative management philosophy, and a company being acquired by a more highly rated organization.

Reasons for downgrades include weakened capitalization, insufficient loss reserves, uncontrolled runaway growth, earnings deterioration, and escalating or unmanaged catastrophe exposure.

He added that a company could be placed under review because of a merger or acquisition, a catastrophe, a significant change in capitalization, regulatory or legal developments, or a change in its business focus.

At A.M. Best, he said the first leg of a "three-legged stool" is "capital, which is king." The organization evaluates risk-adjusted capital, which is "the most important factor of our ratings process."

The other legs of the stool, he said, are "sustained, stable operating profitability" and "a well-diversified business profile, which leads to stability and strength in operating performance."