Insurance Center

S&P Report Points to Challenging Times Ahead For U.S. Insurers
December 15, 2008

According to Standard & Poor's Ratings Services, the failing U.S. economy, exemplified by its increasing waves of layoffs, dislocations in the credit and equity markets, and declining home prices, presents a challenge to almost every domestic business sector, insurance being no exception.

In a recent S&P report directed to North American Insurers, it is stated that insurers have always needed to be aware of their capital-management strategies, in addition to the pricing of their products. They also have to bear in mind the risks in the equity and credit markets that are able to affect their profits, business profiles, portfolios, and ultimately, ratings. The reports out however, that this becomes even more so the case in a recession, when mistakes that might have otherwise had only minor repercussions in better times, could now have much more difficult consequences.

This report is just one among several articles that the ratings agency has published with regard to the insurance sector. Some of the reports that pertain to the insurance industry include a report on the 2009 U.S. personal lines outlook, and another relating to 2009 U.S. commercial lines outlook in which it is suggested that investment losses being suffered by the industry might lead to a less competitive market.

The S&P report on North American insurers maintains that its outlook on several U.S. insurance sectors in 2008, was revised to negative. What this means is that during the next year to 18 months, it is anticipated that there will be more downgrades than upgrades. It is projected that the balance-sheet strength for many insurers will likely erode, while still others may be affected by weak pricing or they may suffer losses from listing credit and equity markets. It is expected that 2009 will likely be a very challenging year by S&P which also believes that strengths remain. One of these is capital adequacy, which for the most part has remained relatively strong, as well as a greater understanding of enterprise-wide risk.

S&P also suggests that enterprise risk management (ERM) is ever more critical to assessing the credibility of North American insurance companies. The S&P report stresses that insurers that that are able to best identify, amass, and control their liquidity, credit and market risks during a time of economic downturn such as this, will be best able to efficiently manage their capital needs and thus be able to experience the least erosion to their creditworthiness.