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

Standard & Poor's said property and casualty insurers will not be able to sustain the current pace of reserve takedowns in the face of deteriorating business conditions in an announcement today.

In addition, rating downgrades could be in store for some carriers if the New York-based rating agency determines their reserve levels are deficient based on its independent evaluations of 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 Reserve Releases."

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

He said p&c insurers have released reserves amid an environment of weak economic recovery prospects, shaky consumer confidence stemming from high unemployment, and a prolonged soft underwriting cycle.

Those factors will make it difficult for the U.S. p&c insurance industry to sustain its historical operating profitability forward, he said.

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

Moreover, S&P believes that as the current soft market cycle continues, some p&c insurers could upwardly revise their prior-year reserve estimates, especially for some of the longer-tail lines.

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

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

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