Insurance companies have been the financial services sector’s big ratings losers of 2002, according to Standard & Poor’s. They have seen their financial ratings plummet while the ratings of banks have generally remained steady. S&P’s Director Gavin Gunning said 2002 “has proven to be a double-edged sword for the competitive Australian financial services sector”.

Banks’ ratings were largely unchanged, as they performed well under favourable domestic economic conditions. “In contrast, the financial strength of major Australian insurers were pressured during the year, with Australia’s largest life insurer and funds manager, AMP Life, and largest general insurer, NRMA Insurance, downgraded.”

But Mr Gunning noted that Australian investment markets haven’t suffered as greatly as other western equity markets and that Australian general insurers also benefitted from the hardening of premium rates. This has “cushioned the impact in a difficult credit environment”.

Looking to the coming year, he said continued market volatility and “questionable commitment” by some overseas parent insurers to their Australian and New Zealand subsidiaries means the uncertain performance of investment markets could continue to affect insurers’ ratings.

“The outlook for the general insurance sector in 2003 is for higher profitability than in recent years underpinned by still-hardening premium rates, although the financial strength of Australian life companies will continue to be challenged in a difficult investment environment.”

Mr Gunning said insurers’ capital and funding levels will continue to be monitored in 2003. The need to continue to engage in strong risk management and corporate governance to ensure ratings remain positive is “critical”.