The ratings agency generally expects downgrades will be limited to one or two notches. The industry's outlook has been negative since October 2008, predominately as a result of the financial crisis and its effect on insurers' investments and earnings.
The view contrasts with peer Fitch Ratings, which last week lifted its outlook on the U.S. property-and-casualty and life-insurance sectors to stable, saying they withstood the downturn "reasonably well" while noting improved investment and underwriting performance.
S&P, meanwhile, on Monday noted catastrophe-loss activity in the first half of this year was generally above average, with "high" U.S. storm losses impacting the profitability of many personal-lines insurers. Insured catastrophe losses reportedly topped $20 billion for the period, said S&P, similar to the total for all of 2009.
For commercial lines, S&P said a "relatively high number of negative outlooks within the sector is largely the result of the cumulative effect of three years of rate decreases and lower demand, which have put downward pressure on premium revenue and underwriting margins."
Meanwhile, S&P expects earnings in the global reinsurance sector to be tested, not only by the losses, but more importantly by its view that of some reinsurers' apparent failure to prevent their margins from eroding at subsequent renewals.
U.S. health insurers, according to S&P, face a number of key challenges, including contending with tough competitive conditions, the increasing risk of regulatory scrutiny of pricing, and responding to developments associated with the next stage of health-care overhaul.