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S&P: Insurer Investment Losses Will Shift Focus to Price

Posted on 29 May 2009

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Pricing is expected to become an ever-increasing focus for earnings at U.S. property and casualty insurers in light of the troubled state of the companies' investments, said Standard & Poor's in a review of the industry. Insurers have reported billions of dollars in investment losses the past several quarters and equities and other holdings took a dive late in 2008.

In an article examining the adversity U.S. insurers are facing as they try to rebuild capital,S&P analysts said they expect U.S.-based insurers to experience more ratings downgrades than upgrades for the rest of this year.

S&P noted that pricing among commercial lines insurers has improved, as industry measures are showing smaller annual declines. However, analysts suspect that if more competitive pricing returns to the market or if the investment markets decline sharply, S&P’s current negative outlook “could linger.”

“The future for U.S. insurers depends heavily on the prospects for the U.S. economy and financial markets—a fuzzy picture at best,” analysts wrote in “U.S. Insurers Face a New Kind of Adversity: Their Investments.”

“Although the domestic housing market has lately shown some signs of stabilizing, and continued government action has helped calm markets, data suggests that we are far from being out of the woods,” according to the report.

S&P said it was “concerned” about insurers’ investment risk in regards to their mark-to-market valuation pressures. Analysts noted that “many companies’ liquidity and debt maturity profiles have hampered efforts to hold depressed assets until they mature, until prices rebound or until they are needed to extinguish their matched liability.”

Low interest rates, analysts said, will continue to diminish investment income, which is often a “sizable” secondary source of insurers’ and reinsurers’ earnings.