With world financial markets apparently racing downhill at a record pace, the latest outlook for international insurers from Standard & Poor's provides a timely reality check for the insurance industry. While the industry is still keeping its collective head below the parapet, things are actually going a lot better than they might have.

The news is generally good - few insurers are highly exposed to subprime-related securities and remain generally well capitalised, especially in Australia.

"Insurers have too often been painted with the same broad brush of fear that has covered Wall Street, the federalised mortgage intermediaries and some banks," S&P report author Robert McNatt said.

He says that unlike some of the shadier corners of the financial services sector, the insurance business model incorporates highly liquid balance sheets and conservative protective measures.

The New York-based credit ratings agency last week gave its view on the state of the play in a report titled Global Insurers Weather the Credit Turmoil - Thus Far.

Mr McNatt claims most international insurers will not suffer the same fate that befell headline victims such as Wall Street investment houses, mortgage lenders and AIG's financial products unit.

But not everyone agrees with S&P. Fitch Ratings, for example, isn't so optimistic. It has revised the rating outlook for 12 global insurance and reinsurance sectors to negative from stable, as insurers book larger losses from their investment portfolios.

But Mr McNatt says S&P won't be following suit. "We foresee few immediate negative rating actions beyond the handful already taken for the biggest players in the reinsurance, property and casualty and life sectors," he said.

Fitch argues it's too soon to accurately predict what will happen in the industry. S&P believes uncertain market conditions and investment losses will create "irresistible upward pressure" on premiums. That would help some insurers who are finding the going is getting tougher.

The S&P report reveals that between April 30 and October 6 of this year, some 26 insurers faced ratings downgrades due to issues around capital, liquidity or earnings. Of those, only nine were property and casualty insurers or reinsurance companies. Most concerned mortgage, life and health insurance companies.

Unfortunately for the general insurance industry, its own shortlist of subprime-linked victims includes some heavy hitters.

AIG is obviously the first that comes to mind. The once mighty insurer has discovered that an $US85 billion ($123 billion) Federal Government rescue package comes with a few strings attached.

S&P doesn't pull any punches on AIG's performance, but goes to pains to ring-fence AIG as a particularly troubled case. "AIG falls in a category all its own, because of the large credit default swap positions of its non-insurance financial products unit," it said.

AIG subsidiaries including those in Australia and the UK have since declared their good health, while its future in the US for now appears secure.

AIG isn't, of course, the only significant market player to need a handout to avoid Skid Row. The market was rocked again last month when Benelux banking and insurance group Fortis had to rely on a €11.2 billion ($21.2 billion) tripartite government injection to stay afloat.

The governments of Belgium, the Netherlands and Luxembourg all pumped cash into the ailing company in return for a stake.

But S&P suggests AIG and Fortis are the exceptions in an international industry that's humming along quite nicely.

Fair enough. After all, it wasn't the actions of the insurance divisions at AIG and Fortis that kneecapped those companies. AIG's credit default swaps punched a mortal hole in the wider corporate structure and as S&P notes, Fortis couldn't hold up its subprime exposures on the banking side while it faced the onerous demands of its various mergers and acquisitions.

Fitch says insurers face mounting pressure on credit ratings across the board for this very reason.

Declining investment returns are certainly affecting all insurers, though to varying degrees. Fitch admits life insurers are copping it worse than others.

It says general insurers won't emerge unscathed, but they have a lower exposure to variable annuity and equity-linked products.

S&P argues general insurers are in fact in relatively good health. In North America the insurance industry is regarded as well positioned to manage their way through the downturn.

In Europe and the Pacific, S&P says insurers have high capital adequacy and low exposure to subprime assets, with the agency costing the total European exposure at $US7 billion ($10 billion), a figure it regards as unremarkable.

In Asia, insurers with exposure to subprime assets should generally have manageable impairment losses, though the agency notes some players will book hefty losses in 2008 earnings.

Though times are tough now, insurers may yet be rewarded for their fiscal caution and skill.