The poor performance of stocks could drive insurance ratesupward because reserves will be inadequate to deal with losses,according to a report from Standard & Poor's RatingsServices.

In its report, "Insurers' Reserve Adequacy Will Come UnderPressure As Operating Profitability Worsens," S&P said the p-cindustry has experienced a declining pricing scenario in the pastcouple of years following a period of strong pricing that startedin 2002 that is affecting reserve adequacy.

Adding to the already weakened pricing environment is themonumental financial crisis facing the global financial markets.With increased pessimism in the global economy and theunprecedented volatility in the financial markets, insurers' lossreserve adequacy, which had been a matter of secondaryconsideration in the past few years, may once again drive ratings,said S&P.

In today's investment environment, p-c insurers that focusprimarily on long-tail businesses, such as workers' compensation,that take many years to settle claims after an insurance event,cannot expect to offset underwriting losses through investmentincomes as they did during the 1990s, the firm noted.

During the previous soft pricing cycle in the 1990s, thetechnology and dot.com bubble created a booming stock market andgenerated a stream of strong investment incomes for insurers thatovershadowed their lackluster underwriting performances. Today,however, the prospects are slim for a similarly robust investmentperformance anytime soon, according to S&P's analysis.

Adding to the current uncertainty, the firm said, is thepotential for significant future losses to emerge from directorsand officers and errors and omissions claims related to the capitalmarket disruptions. Over the next few years, it was estimated,those claims could hit about $10 billion.