Property and Casualty Insurers Take a Pounding

If we are, in fact, in a recession, what would be the impact on the industry?

The industry can be affected in several ways. On the investment side, the risk of loss is greater in the equity and fixed-income markets. On the underwriting side, insured risk is the primary driver of the business, but the overall economy can affect sectors such as auto insurance, where people would be buying fewer cars (or less expensive ones) or cancel their policies because they can't afford them. Workers' compensation claims tend to increase in a recession, which hurts the margin in that sector. A recession could also prolong the overall soft market where prices stay lower longer because businesses simply can't afford to pay more.

Companies with financial strength ratings of B-plus or higher are the ones that are most able to withstand the losses of a prolonged recession.

What do you look for when rating a company?

A: We evaluate companies on several levels including capitalization, reserve adequacy, profitability, liquidity and operational stability. Companies are put through stress tests to determine their ability to withstand moderate and severe economic downturn. This conservative approach allows us to identify companies early that are not positioned to weather the storm before it hits.

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The current financial strength ratings for all property/casualty insurers as well as life, health, and annuity insurers can be found at the Ratings Screener.