Furthermore, the p-c industry is on course to achieve a 103 percent combined ratio for 2003, meaning insurers' expenses and payouts will be $1.03 for every dollar of premium collected?a significant improvement from 109 percent for 2002 and 121 percent in 2001.

Mr. Clark added that S&P ratings actions on the companies in this segment since April 30 reflect a continuing negative trend.

He noted that, in the past six months, his agency took 12 rating actions in the p-c industry, including outlook revisions and revisions to the CreditWatch ratings status, as well as lowered ratings. Among these 12 rating actions, nine were negative, while only three were positive.

"There are a few mountains to move before ratings can turn around," Mr. Clark said, "the largest being massive increases in industry reserves for future payouts.

These reserve charges in the industry have become "an old chestnut," he said. "When insurers have issued policies too cheaply in prior years, and the claims on those policies are going to pay out over an extended period, companies eventually realize that reserves for coming payouts are going to be too small."

As a result, when pricing is strong, "a real opportunity presents itself for reserve strengthening." Despite significant reserve strengthening announced so far this year, there is potential for this trend to continue.

Mr. Clark noted that, in many instances, S&P ratings incorporate estimated shortfalls, but if actual shortfalls turn out to be greater than what the ratings agency expects, there could be even further rating actions.

Commenting on specific segments, S&P said that in personal lines, a favorable rate environment and positive loss controls are boosting profitability for both homeowner and auto. The ratings agency added there is a potential for overall personal lines to reach a 103 percent combined ratio for this year?an improvement from 109 percent in 2002.

S&P also forecast pricing in personal lines would continue to rise, although at a more modest pace. Mr. Clark noted a real potential that the near-term price hike for auto insurance lines might not sustain 2003 increases: "With auto insurance companies achieving strong profitability, competitive pressures are once again being felt."

For homeowners' lines, S&P observed rates are expected to continue to rise, primarily driven by rising construction costs and expensive natural disasters.

Commenting on commercial and specialty segments, S&P said there are two diverging trends that are defining the financial performances of commercial lines?improved pricing, but at the same time the continued overhang of reserve inadequacy for legacy business, such as asbestos and workers' compensation.

Improved pricing is kicking in, the ratings agency observed, helped by tighter terms and conditions, and that's leading to significantly better operating results.

S&P predicted pricing in these lines will remain modestly ahead of claims inflation through next year and will boost operating performance into 2005.