The global insurance industry is poised undergo a dramatic change from cyclical underwriting to a more consistent level of profitability, according to Standard & Poor's.

S&P analyst Christian Dinesen said: "A less cyclical insurance market would be revolutionary for the industry, with such fundamental change promising a more stable underwriting environment."

"Change is by no means certain, however. Reduced cyclicality is the ultimate prize and it will take a concerted effort on the part of all market participants to attain it."

However Dinesen sounded a warning when he said nearly 50% of insurer ratings were on negative outlook or CreditWatch negative.

"If the cyclical nature of insurance markets is not addressed then, the next time the market softens, we could see these negative outlooks begin to play out," he said.

The report was encouraged by the fact that insurers are beginning to use advanced modelling systems, which indicate the market is becoming more sophisticated.

However the report called for more action, with the market needing greater price sophistication, better risk indicators and in client relationships.

Dinesen said: "There is a clear need to move away from the current situation where insurer financial strength ratings of Single A minus and above are seen as acceptable and the rest as bad.

"This could pave the way for more sophisticated pricing, with the cost of risk transfer rising on a sliding scale to reflect the level of security that a cadent is buying."

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