S&P’s warns of negative outlook in late 2008 if commercial pricing continues to drop

Pricing deterioration will likely be the primary commercial property and casualty ratings driver over the next couple of years, predicts Standard & Poor’s (S&P’s).
In its Midyear 2008 U.S. Commercial Lines Outlook, S&P’s notes there are strong indications the deterioration in premium rates that began in earnest in late 2006 has reached the point where there will be a meaningful decline in underwriting profitability for commercial lines writers in late 2008 and particularly 2009.
“If price declines continue at their current pace, we will likely revise the outlooks on some commercial lines insurers to negative in the second half of 2008, which could lead to a negative outlook for the overall sector before the end of the year,” the outlook said.
A negative sector outlook implies that S&P’s expects downgrades to exceed upgrades in the following 12 months.
S&P’s outlook for the U.S. commercial lines insurance sector remains stable at this point.
In the past 12 months, the number of U.S. commercial lines companies with stable or positive outlooks has declined, with an increase in the number with negative outlooks or with ratings on CreditWatch with negative implications, the report says.
“Stable outlooks now constitute 70% of the total, down from 79% a year earlier,” the report says. “The outlook distribution is the best indicator of future ratings activity, so the current distribution suggests an uptick in negative rating actions over the next 12-18 months.”