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S&P keeps negative outlook on property/casualty sector


NEW YORK—Standard & Poor’s Corp. is maintaining a negative outlook on the U.S. commercial lines property/casualty sector as 2009 comes to a close, according to a report the ratings agency released, indicating that more downgrades than upgrades during the next 12 months are expected.

S&P released its report card on the insurance industry Thursday, and the ratings agency said that while insurers rebounded from 2008, analysts still expect the market could experience further volatility during the next 12 months.

S&P has maintained a negative outlook on the P/C sector since August 2008.

Higher net realized capital losses impacted net earnings for insurers during the first half of 2009, S&P said, but it noted that strong underwriting results drove higher overall earnings. The combined ratio for the sector, excluding financial guaranty and mortgage insurers, was 95.4% in the first half of 2009 compared with 95.1% in the first half of 2008.

Meanwhile, declines in pricing in 2008 rolled over into the first half of 2009, S&P said, with insurers’ new premiums written decreasing 7.3% in the first half of 2009. S&P added that this trend stalled in the third quarter, but that insurance buyers are reluctant to absorb cost increases.

“We believe the pricing trend will return to positive in 2010, but we are concerned that loss costs will continue to rise at a faster pace, reducing underwriting profitability,” S&P analysts said in the report.

The U.S. and Bermudian reinsurance sector posted strong results during 2009 due to limited catastrophe events and “significant” unrealized investment gains and improvements in the capital markets, S&P said. S&P maintained a stable outlook on that sector, saying it expects strong underwriting and increasing liquidity in the capital markets to continue into 2010. Analysts expect pricing to soften in 2010 as a result of increased reinsurance capacity.