The economic malaise and mounting catastrophe losses will continue to depress the insurance industry, a new report from Standard & Poor's Ratings Services says.

The report, "Fewer Downgrades Expected For North American Insurance Holding Companies, But Negative Outlook Remains," notes that the company’s outlook on the sector has been negative since the onset of the financial crisis. As the economic downturn lingers and investment income falters, the industry will continue to struggle, S&P says.

“We expect fewer downgrades in 2010 than 2009, but they likely will outpace upgrades, even as the industry, overall, repairs capital and earnings stabilize. Generally, we expect downgrades will be limited to one or two notches (for example, 'AA' to 'AA–' or 'A+'),” the report states.

The specter of further catastrophe losses will exacerbate difficulties for property/casualty insurers and reinsurers. “For personal lines property/casualty insurers, catastrophe loss activity through the second quarter is generally above average for this time of year, with the high U.S. storm losses impacting the profitability of many personal lines insurers,” S&P states. “The Atlantic hurricane season is also approaching its traditionally busiest phase, which runs from mid-August to October.”

The storms may buffet reinsurers especially hard, S&P predicts.

“We expect earnings in the global reinsurance sector to be tested, not only by the amount of losses incurred, but more importantly in our view by some reinsurers' apparent failure to prevent their profit margins from eroding at subsequent renewals. Were it not for the fundamental balance-sheet strength of the sector, our outlook would almost certainly be aligned with the downward pressures stemming from the operating and wider environments.”

 

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