Fitch Ratings has revised its rating outlook for the U.S. commercial lines insurance market to stable from negative, according to Business Insurance.

Fitch’s revised outlook—its first change since September 2000—is largely based on the rating agency’s view that the industry’s reserve position is improved and that rating downgrades of insurers will closely track the number of upgrades.

“We still believe the industry has a material deficiency,” James Auden, senior director with New York-based Fitch, said in a teleconference Monday. But that deficiency’s impact on earnings will moderate, he said, as insurers experience improved underwriting results.

Reserve deficiencies could decrease by as much as $15 billion for commercial insurers, related mostly to underwriting years 1997-2002, said Michael Barry, managing director with Fitch, who also participated in the teleconference.

Insurer ratings, meanwhile, are not expected to change much in the near term, according to the analysts.

“We are not expecting a lot of rating changes in the sector,” Mr. Barry said. “We believe any downgrade activity will closely equal any upgrades.”

“A trump card may be transactional upgrades,” he added, as highly rated companies acquire those with lower ratings.

Commercial insurers should benefit from a profitable property/casualty market in 2004, according to Mr. Auden.

“Barring any major surprises, we think the property/casualty market is on track to earn its first underwriting profit since 1978,” said Mr. Auden. He said that according to Insurance Services Office Inc. figures, U.S. commercial lines insurers reported a first-quarter combined ratio of 94.7% and a 101.2% ratio for 2003.

Pricing has peaked in many lines but remains adequate “for a number of segments,” Mr. Auden said.