S&P had changed the outlook to negative in October of last year because rates looked like they were falling faster than expected, and in response to the "Spitzer bombshell"--the New York attorney general's suit against Marsh, which looked like it would impact some insurance companies rated by S&P.

"Things turned out better than expected," Mr. Iten said, explaining the recent outlook reversal back to stable. Even though prices have softened, "we feel the market remains quite orderly," he said, adding that regulatory investigations now look like they won't expect too many insurance company ratings going forward.

Strong underwriting results in 2004 and first-quarter 2005 are additional factors, he said. "And it's hard to ignore the amount of surplus that has accumulated," he said, noting that capital adequacy improved in spite of material reserve strengthening in 2004. The p-c industry surplus has increased over $100 billion in the last two year--$46 billion in 2004 on top of $61 billion in 2003.

In general, S&P expects a recent trend toward few rating actions--whether upgrades or downgrades--to continue for the balance of the year. Two-thirds of the individual companies carry stable outlooks, he said, adding that negative outlooks have dropped from 40 percent of rated commercial lines insurers in 2004 to 25 percent by May 2005.

Reviewing current pricing trends, he said that large commercial property accounts and public directors and officers policies are the "problem areas" with the most competitive price activity. But profit margins are still good in most lines, Mr. Iten said, noting that many insurers had combined ratios that did much better than the 100 break-even point for profitability and reported results in the high-80s and low-90s in the first quarter of 2005.

John Amore, CEO, Global General Insurance, said that in the casualty area, low single-digit price decreases have started to appear in 2005, with small businesses finding a more stable pricing environment and large corporations falling into a more unstable, competitive area.

The "small-large" divide plays out on the property side as well, with small businesses not seeing the decreases enjoyed by large corporate customers, he said.

But on the property side, "as we move into the second quarter of 2005, for large corporations we do see moderation," he said.

Thomas Walsh, senior vice president of Lehman Brothers, noted that while there's "no doubt the CIAB data is going in the wrong direction," referring to a quarterly broker survey of prices, "we think the industry combined ratio is only softening 2-3 points for most lines, and at most 5 points for some lines.

"We're not going to be overly concerned about a combined ratio that's in the high-80s or low-90s moving even 5 points out," Mr. Walsh said. Most analysts following the combined ratio for any period of time know that the average combined ratio over the longer term has been closer to 108, he noted.

"Right now, in 2004, we think this is still an industry that is going to put up some historically good numbers," he said.

Mr. Iten also said that after two years of adverse prior-year loss development in commercial lines--$22 billion in 2002, $17 billion in 2003, and $14 billion in 2004--S&P expects a drop in that figure in 2005.