S&P’s not overly optimistic about global multiline insurers’ ratings

Despite signs of an economic recovery, including positive trends in the equity markets and lower credit spreads, Standard & Poor’s (S&P’s) Rating Services remains of the opinion that market conditions will continue to put pressure on its ratings of global multiline insurers (GMIs).
“Over the past two years, impairments on invested assets have substantially eroded GMI’s capitalization and operating performance, in some cases leading to downgrades, S&P’s said in its report, Despite Signs of Economic Recovery, the Prognosis for Global Multiline Insurers Remains Subdued.
“We still anticipate that impairments on certain asset classes of investments will eat into the GMI’s earnings in 2009 and potentially in 2010.”
S&P’s also remains “cautious on certain risk exposures, specifically exposure to commercial mortgage-backed securities, collaterized debt obligations, commercial mortgages, commercial real estate, hybrid securities from financial institutions, and residential mortgage-backed securities.”
Investment returns will likely remain “subdued” over the next two years, it added.
Six of the 12 GMIs featured in the S&P’s report currently carry negative outlooks, compared with four at the end of 2008.
“In most cases, this reflects our assessment that lower investment returns will likely continue to constrain the GMI’s earning potential in 2009 and 2010 and that the capital adequacy of many GMIs is still below what we consider commensurate with the respective ratings, despite improvements since April 2009.”