27 October 2022Analysis

S&P downgrades US P/C sector outlook

S&P Global Ratings has revised its view on the US property/casualty sector to negative from stable, reflecting expected weaker credit trends over the next 12 months, according to a new report.

The report, entitled ‘US Property/Casualty Insurance Sector View Dims On Weakening Capitalisation’, says that rising interest rates reduced the market value of property/casualty (P/C) insurers' fixed income portfolios and generally accepted accounting principles (GAAP) shareholders' equity.

At the same time declines in the value of equity holdings, elevated natural catastrophe losses, and deteriorating personal auto underwriting results pressure the net earnings of some insurers, the report said.

“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 capitalisation to a level consistent with our current ratings over the next 24-36 months,” said John Iten, primary credit analyst with S&P Global Ratings.

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.