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Good news for risk managers with policies covering millions of dollars' worth of corporate assets: Fewer insurance companies went belly up last year.

There were losers, of course, as there always are: Atlantic Preferred Insurance Co., Booker T. Washington Insurance Co., Florida Preferred Insurance Co., Municipal Mutual Insurance Co., NJ Exchange, Phoenix Fund Inc., Security General Life Insurance Co., Southern Family Insurance Co., Ultimed Insurance Co. of Michigan, Universal Insurance Exchange and Vesta Fire Insurance Corp.

The ratings agency, which issued the report on insurance insolvencies over the winter, has a "stable outlook" on the commercial-lines sector, noting the property/casualty sector's strong earnings and robust balance sheets. As of Jan. 1, 2007, of the commercial-lines writers rated by S&P, 75 percent had stable outlooks, 11 percent had positive outlooks and 14 percent had negative outlooks. None was on CreditWatch.

The authors of the report, Kristina Koltunicki and Grace Osborne, expect the sector to be profitable in 2007.

"We expect the commercial-lines sector's combined ratio to be close to the property/casualty industry's expected average for 2007, between 94 percent to 95 percent," the authors wrote.

A combined ratio of less than 100 percent means the industry is profitable. Ratios higher than 100 percent mean the industry's losing money.

Koltunicki and Osborne wrote that, in 2007, insurers will still face challenges. These include making sure the industry doesn't blindly cut prices to gain market share, and making sure that insurers have enough capital to meet stricter requirements imposed by new capital models used by the ratings firm.

Finally, if Congress doesn't renew the extension to the Terrorism Risk Insurance Act, due to expire at the end of the year, the industry could face a ratings downgrade, the report's authors wrote.

April 15, 2007

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