A.M. Best Maintains Stable Outlook on the Personal Lines Segment

Business Wire, Feb 26, 2008

OLDWICK, N.J. -- A.M. Best Co. has maintained a stable outlook for the personal lines segment in 2008 based on continued operating profitability, strong balance sheets and anticipation of ongoing underwriting discipline.

Although results deteriorated modestly in 2007 relative to prior years, they remained favorable due to price adequacy, underwriting segmentation, modest catastrophe losses and continued risk management initiatives. The deterioration in 2007 results reflects increasing loss-costs trends as well as competitive market conditions. A.M. Best anticipates that these trends will continue in 2008, with additional modest declines in overall financial performance. However, results are projected to remain adequate with a very modest underwriting gain in 2008. Further, overall balance sheet strength remains solid following several years of robust surplus growth.

Looking ahead, a key risk factor in 2008 will be carriers' approach to pricing in a competitive environment along with a shift in underlying loss-cost trends. As the auto loss frequency declines--evident for the last several years--have begun to moderate along with an increase in severity, cycle management has become a critical discussion point in the A.M. Best rating assessment. As a result, companies looking for favorable changes in their respective ratings will need to demonstrate their underwriting discipline and ability to sustain favorable results prior to ratings upgrades or the assignment of a positive outlook.

It is plausible that the severity of the soft market cycle for the personal lines segment may be tempered relative to prior market cycles, given the underlying structural changes in terms of underwriting and pricing segmentation. Factors that could negatively impact the segment include the possibility of irrational market-based pricing decisions, catastrophes and regulatory mandates. Despite these risks, A.M. Best remains cautiously optimistic with regard to carriers writing predominantly personal lines and their approach to pricing in this environment due to the improved segmentation, product differentiation and need for underwriting discipline given the general economic environment and volatile investment markets.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.