Fitch maintains stable outlook on commercial lines despite Spitzer probe

Even with the cloud of the investigation into commission practices, rating agency Fitch is maintaining its stable outlook on the U.S. commercial lines p&c sector.
Recently, Standard & Poor’s said it was placing a negative outlook on the sector following a recent civil suit filed by New York Attorney General Eliot Spitzer against broker Marsh, and citing several commercial insurers, concerning placement and commission practices. The suit has been followed by similar investigations in other states and by regulators in Canada.
The investigation caused Fitch to downgrade Marsh parent Marsh & McLennan two notches, and place a negative watch on fellow broker Aon. However, Fitch says that the obvious negative impact the investigations will have on brokers it is less clear how commercial insurers will be affected, although it should be less severe than what brokers can expect.
Among the reasons for maintaining the sector’s outlook, Fitch lists: the expectation that potential fines paid by insurers will not be large enough to hurt ratings; that no commercial insurers have yet been named as defendants in the Spitzer suit; while some damage has been done to insurers’ reputations, this has been limited; and that the sector’s profitability should remain intact.
However, Fitch does note that should an insurer or a high-level insurer executive be named as defendant in a criminal or government civil case, ratings pressure could be felt.