US insurers that remain committed to basic fundamentals and maintain a disciplined approach to underwriting and risk selection are better positioned to succeed, a Standard & Poor’s (S&P) report says.

The ratings agency says US property and casualty insurers are “generally on solid financial footing”.

Companies with the greatest risk of downgrades are those that report significantly weaker underwriting performance, incur outsize catastrophe losses, or suffer a significant drop in capitalisation or earnings because of reserve strengthening or investment losses.

S&P says there is stable demand in the US for car and homeowners’ insurance, because many consider these an “essential good”.

However, it urges insurers to be cautious in a sluggish economy.

Pricing generally seems to be on the rise for US property and casualty insurers, but S&P says this is due to record losses and muted investment income rather than any improvement in “competitive fundamentals”.

S&P forecasts a combined ratio of 102% for personal lines, and 106% for commercial lines excluding mortgage and financial guaranty insurers.

The agency predicts a stable outlook for this year and 2013 after “near record-high” losses of 2011.

“Modest” premium growth is expected, with insurers forecast to make a 9% return on revenue.