NU Online News Service, June 3, 3:30 p.m.EDT

Standard & Poor's said property and casualty insurers willnot be able to sustain the current pace of reserve takedowns in theface of deteriorating business conditions in an announcementtoday.

In addition, rating downgrades could be in store for somecarriers if the New York-based rating agency determines theirreserve levels are deficient based on its independent evaluationsof reserve adequacy, S&P warned.

The concerns are included in the new S&P report, "Why U.S.Property/Casualty Insurers Might Have To Put The Brakes On ReserveReleases."

"We now believe that after years of large reserve releases fromrecent accident years, companies likely won't be able to continueat this pace," said Standard & Poor's credit analyst SiddharthaGhosh, in a statement released in conjunction with the report.

He said p&c insurers have released reserves amid anenvironment of weak economic recovery prospects, shaky consumerconfidence stemming from high unemployment, and a prolonged softunderwriting cycle.

Those factors will make it difficult for the U.S. p&cinsurance industry to sustain its historical operatingprofitability forward, he said.

Lower revenue income from a decline in payrolls and sales,excess capacity in the industry, continuing price declines, andreduced net investment income resulting from low investment yieldsare going to weaken insurers' operating profitability in the yearsahead, S&P said.

Moreover, S&P believes that as the current soft market cyclecontinues, some p&c insurers could upwardly revise theirprior-year reserve estimates, especially for some of thelonger-tail lines.

"We continue to elevate our independent analysis of loss reserveadequacy for p&c insurers based on our current criteria andadvanced tools," Mr. Ghosh said.

"If we find that a p&c insurer's required reserves areinadequate, we might adjust the company's reserve adequacy,earnings, or capital adequacy," he said.

"In some cases, this could, based on materiality, result inrating actions," he warned.