The U.S. personal-lines insurance sector==particularly the auto market==is entering a soft cycle in 2005, but this current soft period is expected to be shorter-lived than previous ones, Standard & Poor's said in its new report.
S&P noted that at this point, the softening environment has not yet resulted in across-the-board rate cuts but has led to "looser underwriting standards in certain corners of the market." S&P offered its observations in a new report titled "U.S. Personal Lines Insurer Mid-Year Outlook: Market Continues To Soften Despite Heavy 2004 Catastrophe Losses."
S&P credit analyst Polina Chernyak said the personal-lines sector is at a crucial point where carriers could be tempted to discount product offerings to build market share, a pattern last observed during the soft market in 1987-2001. "The concern is that this trend toward weaker operating results could soon reassert itself, especially given the higher yields available on investments as interest rates rise generally in U.S. financial markets," Ms. Chernyak said.
Still, with carriers having had several years of improved pricing and more rigid underwriting accuracy, the current soft cycle is expected to be shorter than previous ones, Ms. Chernyak said, especially for carriers with sophisticated operational tools.
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