In This Issue: After A Record 2006, Can U.S. Insurers Maintain Their Discipline?
For the insurance industry as a whole, 2006's results were the highest in this decade. According to the Insurance Services Office, U.S. property/casualty insurers' net income was $63.7 billion for 2006, a 44.3% increase from 2005's catastrophe-laden results. Few disasters in 2006 and strong price increases from prior years let the industry catch the perfect wave in 2006 and achieve record profits.U.S. Life Insurance Midyear 2007 Outlook: The Hunt For Sustainable Growth Is On
The next 12 months present some sizable challenges for the U.S. life insurance sector. Among the issues it faces are the likelihood of a continued flat yield curve, more mergers and more acquisitions, and a weak environment for individual life insurance product sales. In addition, current rising risk levels in the credit markets, which have begun to show some weakening, will make the coming year even more difficult for insurers. The Essential Role Of Earnings In North American Life Insurer Ratings
Earnings are fundamental to the health and strength of a life insurer. They underpin capital, financial strength, and flexibility. They fund growth, are the first line of defense against unexpected losses, and pay dividends and debt obligations. And they cover the cost of the brand, product development, as well as capital spending. U.S. Managed Care:Taking A Breather After A Profitable Growth Spurt
The managed care sector in the U.S. is at the end of a very profitable cycle, in which ratings have been buoyed by moderate inflation in medical costs, the increased pricing power that comes with consolidation, an expansion into new product lines, and strong cash flows and capital adequacy. But no good thing lasts forever. Standard & Poor's expects the managed care industry to perform at a less heated pace than in the past two years. U.S. Personal Lines Midyear 2007 Outlook:Softer Pricing Brings Crucial Challenges
The comparatively few catastrophes in 2006 led to record-setting net profits for personal lines insurance companies last year, and indicators thus far in 2007 are trending positive. Standard & Poor's is continuing to see good risk-adjusted capitalization and operating profitability, favorable pricing trends, improved loss reserves, and underwriting discipline from personal lines companies, along with
stronger enterprise risk management. U.S. Commercial Lines Insurers Midyear 2007Outlook: Price Deterioration May Erode Healthy Profit Margins
The U.S. property/casualty industry-including the commercial lines segment-generated record earnings in 2006. Unfortunately, this year probably won't be another record-breaker. We continue to believe that 2006 was the peak earnings year in the current underwriting
cycle. The commercial lines segment still has many things going for it: Reserve-adequacy concerns have receded, and the balance sheets of many insurers are in their best shape since the late 1990s. U.S. And Bermuda Reinsurance Midyear 2007 Outlook: Calm Before More Storms?
Poor operating profitability has traditionally plagued the reinsurance sector, but that's no longer the case. Most reinsurers enjoyed record-setting 2006 profits, thanks to significantly higher premium rates in catastrophe exposed business, substantially tightened terms and conditions, and the lack of major catastrophe losses due to the unexpectedly calm weather. The Booming U.S. Life Insurance Securitization Market Shows Signs Of Diversifying
The U.S. life insurance securitization market is undergoing quiet changes, some of which will play out over the next few years. Already, growth has been phenomenal, with outstanding volume expanding fivefold in just five years to roughly $18 billion. And issuance is on the verge of surpassing that of property-and-casualty related securities, such as catastrophe bonds, for the first time-a significant development. About CreditWeek:
CreditWeek highlights activity in the global credit markets, providing financial professionals with objective insight and extensive analysis in the global credit markets. Providing breaking news articles, industry analyses, market commentaries, and ratings trends, CreditWeek brings you the credit expertise and analytical rigor of Standard & Poor's worldwide team of analysts through this weekly publication.
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