P/C INSURER RATINGS VULNERABLE: S&P

NEW YORK -- Insurers' financial strength ratings likely will fall as the industry's operating performance inevitably deteriorates, a rating agency says.

The good times for property and casualty insurers' results and ratings cannot buck the realities of low rates and expanded coverage for much longer, according to a report by Standard & Poor's Corp. in New York.

"Carriers are pressed to deploy their capital in a low-growth environment and, as a result, are taking actions optimistically characterized as creative, but realistically labeled as potentially unsound," the report said.

In particular, insurers are offering multiyear policies for inadequate rates, deleting standard exclusions, liberalizing claims reporting requirements, covering punitive damages, expanding pollution coverage, insuring employment practices-related risks and changing claims-made coverage to occurrence coverage, the report said. In commercial lines, this expanded coverage has been coupled with rate reductions of more than 10%, S&P noted.

A buoyant economy, good investment returns and a downturn in natural catastrophes currently are saving insurers from losses, the S&P report said. But a good financial performance is not sustainable in the long term, and a deterioration in results will lead to lower ratings, it said.