New York--Fitch Ratings has revised its Rating Outlook for the U.S. commercial lines insurance sector to Stable from Negative. Fitch had maintained a Negative Rating Outlook on the sector since September 2000.                                                                                                                                                                                                           

The revised Outlook reflects Fitch's expectations for fewer rating changes in the near term, and that the number of rating downgrades will more closely equal the number of upgrades going forward. A major contributing factor behind this change in Outlook is Fitch's somewhat improved view of the industry's reserve position. 

Operating results for commercial insurers have been adversely impacted for the last three years by unfavorable reserve development from recent accident years in longer-tail commercial lines and older asbestos exposures.   

Fitch's recently updated reserve analysis indicates that the industry still has a material reserve deficiency, but the deficiency has declined somewhat due to recent reported adverse development and indications that reserves for the most recent underwriting period are being set more conservatively. Fitch believes that its current ratings incorporate potential reserve shortfalls that still exist for many insurers. Thus, if reserves do develop unfavorably, but remain within expectations, then ratings will be affirmed. Negative rating actions may still occur in cases where reserve charges exceed prior expectations.    

While prior period reserves are expected to continue to develop adversely going forward, the earnings impact from development is expected to moderate. Also insurers have recently experienced improvements in underwriting performance and earnings for their current book of business that dampens the effect of past reserving issues on current earnings.                                                                                              

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