Industry’s ability to generate underwriting profit in question: S&P

In the full version of its “industry report card” on Canada’s p&c sector, rating agency Standard & Poor’s shows little hope that an underwriting profit can be achieved.Following on comments from a press release issued in conjunction with the report (see Breaking News, 5/28/2003), S&P says that Canada’s fragmented p&c market has shown no clear price leadership to bring about the underwriting profit required in light of investment market declines.”Although industry prices have increased, P&C companies still have not seen a combined ratio less than 100% in more than 10 years and have not earned profits from underwriting in more than 20 years, as premiums collected no longer cover claims and expenses,” states the report.A combined ration below 100% is what the industry will need if it is going to deliver the double-digit returns shareholders expect. To generate a 12% return on equity, the industry would need to run its underwriting profitably, something that has not happened in this generation, the report notes.S&P notes that 40% of companies have been downgraded since the start of 2002, and a full 85% of its interactive ratings (versus those based only on public data) are on credit watch or have a negative outlook attached. “At a time when these companies might need to strengthen their balance sheets, the deteriorating credit ratings are making it more difficult for these companies to raise new capital.”