Even though companies in the property and casualty insurance market are undergoing a tough period, a major ratings agency believes the sector will remain stable.

Ratings on the US property and casualty industry are expected to remain stable even though earnings growth will be harder to achieve, Duff & Phelps Credit Rating Co. (DCR) stated in a study of the sector.

The state of the US industry affects Bermuda's insurers and reinsurers which are doing an increasing amount of direct business in North America. Duff & Phelps also rates many of the Bermuda-based businesses.

"The industry's strong near-term solvency characteristics help offset earnings pressures and stabilise ratings,'' the agency stated. "Examples include the industry's robust capital position, high levels of liquidity and very good asset quality.'' Other factors contributing to a stable outlook includes good performance in the personal lines business, more aggressive and comprehensive property catastrophe exposure management, and lowered concerns about asbestos and environmental claims.

In the longer term, DCR believes the industry's outlook will also be stable even though the trend will be for the stronger companies to get better ratings, and weaker ones to be downgraded.

Ratings are important for companies in attracting clients who want an insurer that's going to be able to make a payout in the event of insurable losses.

"However, DCR does observe several longer-term trends, including movements to self-insurance, consolidation of both commercial policyholders and insurance brokers, and globalisation, which will have a more enduring impact, both positive and negative on may insurers' operating and financial profiles,'' the agency stated.

On a positive note DCR does not foresee any major price declines in the commercial lines pricing during 1999. Losses in 1998, from events as Hurricane Georges, caused an estimated $15 billion in losses.

However loss reserving levels will deteriorate for many companies during 1999 and the contribution of investment income to earnings will decline further.

"The stable ratings outlook for 1999 is also influenced by DCR's belief that the long-term fundamentals of the property /casualty industry will remain favourable,'' the agency stated.