Standard & Poor’s gives North American insurance market a stable rating

Standard & Poor’s has given the North American insurance market a stable outlook in a recent report, meaning its positive and negative ratings for insurers in 2008 are expected to balance out evenly.
The ratings agency noted the 2008 Q1 results in the personal lines sector “signalled a challenging environment.” S&P’s said the environment was based on a sharp drop in investment income, as well as severe, weather-related losses related to winter storms, hail, flooding and tornadoes.
“We are concerned about the long-term sustainability of earnings and returns amid competitive market conditions, a softer pricing cycle, reduced reserve releases compared with prior years and lower investment returns,” Standard & Poor’s notes in its report.
S&P’s gave the commercial lines sector a stable outlook as well, although it was wary of deteriorating profit margins in 2008 and 2009.
“Deterioration in underwriting profitability in 2007 was less than we had anticipated,” the report notes. “We expect that margin deterioration will be more pronounced in 2008, but we still believe the industry will generate another underwriting profit (assuming a normal level of catastrophe losses).”
But Standard & Poor’s suggested that if price declines continue at their current pace, it would likely revise its outlook on the commercial lines sector 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.