Rating agency Standard & Poor’s is predicting little good news in the near term for insurers in Europe and Japan. In a report on the European insurance sector, S&P says that continued pressure on credit quality, despite some signs of stability, should lead to further downgrades. In reviewing the fortunes of 34 debt-issuing insurers, S&P says that the ability to get new capital, liquidity and capital adequacy are still having a negative impact on credit quality. “One-third of the insurers included in the report have been downgraded since December 12, 2002, reflecting the cumulative negative factors that have built up within the insurance sector over the past few years,” says S&P credit analyst Rob Jones. “The outlook on close to 40% of insurers included in the report is now stable, up from 12% in December 2002. Nevertheless, 50% of issuers remain on negative outlook, indicating an expectation that further downgrades may occur.” Earnings have not improved as expected, and poor P&C underwriting results continue to plague insurers when combined with investment losses. Also commenting on the Japanese non-life market, S&P says its negative outlook on the 10 major insurers involved continues. This comes despite improved underwriting results for the fiscal year ending March 31, 2003, as a result of low natural catastrophe losses and expense cutting. But with investment markets remaining weak and capital eroding thanks to declining equity values in the Japanese market, there are still serious concerns. “Given the poor economic outlook, a substantial improvement in investment profit is unlikely, while pressures on profit and capital are expected to persist,” says S&P director Runa Ichihari. Competition is likely to persist in the auto insurance market, leading to slow premium growth in 2003. Insurers are expected to try and diversify through geographic and product expansion to counteract this slow growth in the domestic non-life market, S&P says.