27 October 2022Insurance

After UK, US P&C insurance outlook turns negative on lower capital levels

S&P Global Ratings has revised its view on the US property/casualty (P&C) insurance sector to negative from stable, reflecting expected weaker credit trends over the next 12 months, just a day after  Moody’s turned negative on the UK’s P&C insurance sector outlook in light of the burgeoning inflation that is pushing up claims costs and widening credit spreads.

Credit downturn is highlighted as a key risk by both agencies in the UK and US markets.

According to S&P's new report, 'US Property/Casualty Insurance Sector View Dims On Weakening Capitalisation', the current economic factors are likely to reduce insurers' profit margins and adversely impact their capital levels.

Rising interest rates reduced the market value of P&C insurers' fixed income portfolios and generally accepted accounting principles (GAAP) shareholders' equity, while declines in the value of equity holdings, elevated natural catastrophe losses, and deteriorating personal auto underwriting results pressure the net earnings of some insurers, S&P said in its latest report.

John Iten, primary credit analyst with S&P Global Ratings, noted: "We expect to make negative revisions to the ratings or outlooks of those insurers whose capitalisation has fallen materially below our expectations and whose projected earnings and capital management options, in our view, will be insufficient to rebuild capitalization to a level consistent with our current ratings over the next 24-36 months."

As insurers report their third quarter results, S&P Global analysts will be updating their assessment of capital and earnings, as measured by S&P Global Ratings' proprietary insurance capital model. As part of this process, earnings forecast for the projection period (2023-2025) and expectations for capital management activities will be revised.

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