Industry’s ability to generate underwriting profit in question: S&P

In the full version of its “industry report card” on Canada’s p&c sector, rating agency Standard & Poor’s shows little hope that an underwriting profit can be achieved.
Following on comments from a press release issued in conjunction with the report (see Breaking News, 5/28/2003), S&P says that Canada’s fragmented p&c market has shown no clear price leadership to bring about the underwriting profit required in light of investment market declines.
“Although industry prices have increased, P&C companies still have not seen a combined ratio less than 100% in more than 10 years and have not earned profits from underwriting in more than 20 years, as premiums collected no longer cover claims and expenses,” states the report.
A combined ration below 100% is what the industry will need if it is going to deliver the double-digit returns shareholders expect. To generate a 12% return on equity, the industry would need to run its underwriting profitably, something that has not happened in this generation, the report notes.
S&P notes that 40% of companies have been downgraded since the start of 2002, and a full 85% of its interactive ratings (versus those based only on public data) are on credit watch or have a negative outlook attached. “At a time when these companies might need to strengthen their balance sheets, the deteriorating credit ratings are making it more difficult for these companies to raise new capital.”