S&P Maintains Stable Outlook on North American Insurance Services

S&P Global Ratings has maintained a stable outlook on the North American insurance services sector, citing strong economic conditions, the current insurance rate environment, and the likelihood for robust capital market and deal activity in 2022.

S&P noted that insurance services are a subset within the broader US-based corporate business and consumer services sector. The group of companies provides business services to the insurance sector, exposing them to a large and well-established marketplace with limited exposure to underlying insurance risk.

Insurance brokers make up the largest group among the insurance services companies rated by S&P, which also include health insurance and cost-containment servicers, claims managers, and warranty administrators.

The rating agency noted that unlike insurance companies, which generally carry investment-grade ratings of BBB- or higher, insurance services companies are mostly speculative grade, rated BB+ or lower, with most in S&P's B rating category.

"Insurance services companies generally operate with high leverage and relatively weak credit-protection measures, mainly due to financial-sponsor ownership, acquisition-oriented growth, and aggressive financial policies related to their capital structure," an S&P statement said.

At the end of 2021, approximately 80 percent of S&P's insurance services rating portfolio maintained stable outlooks, the rating agency said, with the remainder reflecting a modest upward bias.

S&P noted that general economic conditions can have a material impact on insurance brokers' revenue because the premium exposure base that underlies commissions and fees fluctuates depending on levels of payroll, inventories, sales receipts, and other insured risk. "Given our expectation of near mid-single-digit GDP growth in 2021 and 2022, we believe macroeconomic conditions will continue to benefit the sector," S&P said.

"Overall, we believe insurance brokers will demonstrate continued steady performance in 2022, supporting their current ratings," the rating agency said.