The reputation of Australia’s property and casualty (P&C) insurers has been “tarnished” by the Hayne royal commission, says S&P Global Ratings.

The ratings agency highlights the impact of last month’s insurance hearings in a report released today, saying they brought to light “concerns and deficiencies” around compliance, misconduct and expected duty of care.

“We view the Australian [P&C] insurers’ reputation as tarnished,” it says. “While the royal commission’s final findings are not yet known, they will likely result in a range of actions including changes to products, processes and procedures.

“Measures will also likely strengthen company and industry controls, and consequently raise operating costs.”

Despite the impact of the royal commission, S&P expects the sector to continue its recovery and record “solid” earnings this year and next, reflecting recent rate hardening across many lines.

It predicts moderate rate rises in motor and home and contents, with “selective” hardening in commercial lines.

“We anticipate that P&C insurers will use some of the strong returns from personal lines to enhance operational efficiencies, defend market positions, and refine risk-based pricing capabilities,” credit analyst Craig Bennett said.

“Headwinds include slower volume growth, claims inflation, and more recently the enquiries forming part of the royal commission. On balance, we maintain our stable outlook for the sector.”

Life insurance is in a much tougher place, according to a separate report, also published today. The last few years have been “forgettable” for the industry, it says.

Poor customer claims experience in 2016 damaged the industry’s reputation, which has been further eroded this year.

While disclosures from the royal commission have been “embarrassing for both the P&C and life insurance industries”, S&P says overall the life sector “experienced greater adverse publicity”.

“The under-performance of the individual income protection line of business continues to hinder the industry’s profitability and there are prospects of legislative changes affecting group business that threaten to further erode margins,” credit analyst Mark Legge said.

“There is also uncertainty surrounding the extent and impact of the royal commission recommendations due early 2019. All these challenges reinforce the negative trend we see for the sector.”