Fitch Ratings has revised its outlook for the US commercial lines sector from negative to stable.
Fitch had maintained a negative outlook for the sector since September 2000.
The ratings agency said it expected to see fewer rating changes in the near term, with a roughly equal number of rating downgrades and upgrades.
A major factor in the outlook upgrade is Fitch's improved view of the industry's reserve position, said the company.
Fitch said operating results for commercial insurers have been adversely impacted for the last three years by unfavourable reserve development from recent accident years in longer-tail commercial lines and older asbestos exposures.
But it said its updated reserve analysis had indicated that the industry still had a material reserve deficiency, but the deficiency has declined due to recent reported adverse development and indications that reserves for the most recent underwriting period were being set more conservatively.
While prior period reserves were expected to continue to develop adversely going forward, the earnings impact from development was expected to moderate, said Fitch.
It also said that, barring any unusual events, the US property/casualty insurance industry was on track to report its first underwriting profit since 1978 for the 2004 year of account, contributing to Fitch's decision to upgrade the sector's outlook.
