Prices continue to decline across all commercial lines, S&P said, adding that second quarter renewal rates fell by mid-single-digits in most lines and a low double-digit rate for new business. The decline in rates will adversely affect underwriting results over the next 12 to 18 months, said John Iten, a credit analyst with New York-based S&P, in a statement.
“Although some companies and outside observers have suggested that the rate of deterioration might have bottomed out in the second quarter, rates are still declining steadily,” he said. “Absent an extraordinary event, we do not see anything reversing the general downward direction of rates over the next six to 12 months.”
Mr. Iten added that S&P expects full-year 2008 underwriting results for most commercial lines underwriters to remain relatively strong, with U.S. property/casualty insurers’ combined ratio still less than 100%, but that underwriting performance will deteriorate through the remainder of this year and much of 2009.
Another factor affecting the sector’s outlook is the significant increases in unrealized losses in credit markets.
S&P last revised its outlook for the U.S. commercial lines market in June 2005, upgrading the outlook to stable from negative as the ratings agency’s concerns subsided over the impact of regulatory investigations into bid rigging within the industry.
“At this point, we see few—if any—of our rated insurers as likely upgrade candidates over the next twelve months,” Mr. Iten said. “As underwriting results continue to deteriorate, we expect the commercial lines companies with negative outlooks to increase by year-end 2008 and downgrades to exceed upgrades in 2009.”