S&P Sees Insurer Downgrades Ahead For 2009

National Underwriter News
December 16, 2008

Standard & Poor's said the combination of the credit crunch and a depressed equity market has led it to issue a negative outlook on sectors of the U.S. insurance industry and downgrades for several insurers can be expected in the next 12 to 18 months.

In several reports the New York-based rating service issued last week, S&P said the revised outlook on several U.S. insurance sectors means it expects to see more downgrades than upgrades.

S&P analysts attributed losses to a combination of erosion in balance-sheet strength, soft market pricing and declines in investments.

However, it was not all doom and gloom. S&P said while next year will be a challenge, some strengths do remain for the industry. Capital adequacy, which has remained strong, and a better understanding of enterprise wide risk, are some strength's for the industry to stand on.

Jeff Watson, an S&P analyst said in one report that the absence of available credit is putting enormous pressure on insurers. Cash flow is expected to tighten for some holdings companies. This will make it difficult for some to meet their debt service requirements and refund or refinance upcoming debt maturities and or other financial commitments.

S&P said it has revised its outlook on the U.S. personal lines insurance sector from stable to negative and revised its outlook for the U.S. commercial sector to negative back in August.

Besides the capital markets, commercial insurers were negatively impacted by second half catastrophe losses.

The personal lines industry, while being affected by catastrophe losses and the economic downturn, may also suffer because of the Recession, which has the potential to affect growth and earnings prospects.

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