United States insurance sectors are expected to see generally stable credit trends in 2013 due to strong balance sheets, a stable business climate, and improved enterprise-risk-management strategies, says Standard & Poor's Ratings Services.
In a report released today titled “U.S. Insurers’ Sound Fundamentals Should Counteract Sluggish 2013 Economic Performance,” analysts say the Congressional deal to avert or at least delay the fiscal cliff reduced the near-term likelihood of the U.S. economy falling into recession.
However, S&P says the recovery remains fragile and further political brinksmanship over spending and the deficit could overshadow the economy and markets for much of 2013.
“This sluggish recovery continues to weigh on all insurance sectors, and we expect the rating impact to be stable to modestly negative in 2013,” says Standard & Poor’s credit analyst Rodney Clark. “However, risk aversion and strongly recovered capital bases since the financial crisis will go far in mitigating negative factors. Unfortunately, we expect the downside risks to continue to outweigh upside risks at least in 2013.”
Yesterday, insurance rating service A.M. Best said it will maintain its stable outlook for personal lines, but holds a negative outlook for commercial lines.
Overall, personal lines are adequately capitalized as auto produces generally “adequate performance and stability.”
Homeowners, on the other hand, is subjected to “volatile weather-driven performance.” The line also suffers from continued competition, less-favorable loss reserve development, low investment yields and the sluggish economy.
Turning to reinsurance, Robert De Rose, vice president for the Oldwick, N.J.-based insurance-rating firm, says the stable rating remains as it has for past several years.
“The rationale for that is the solid capital position of the reinsurance market and the relatively reasonable earnings, despite increases volatility mainly from catastrophe losses,” says De Rose.
He notes that reinsurers are dealing with weak “pricing fundamentals” and “low investment yields” that are proving a challenge toward profitability for the underwriters.
However, they have been able to earn “a reasonable level of profitability” with combined ratios coming at or near the breakeven point.
In 2013, reinsurers are expected to see “reasonable organic growth” in their capital, but “stabilization in reinsurance pricing may be short-lived.” Sandy, Best continues, had little impact on pricing going into January renewals, but “some regional accounts that were impacted did experience price increases.”