A new report from Standard & Poor’s Ratings Services says Canadian property and casualty (P&C) insurers may face a tough second half of 2005.

S&P says solid underwriting profits gave Canadian P&C insurers a boost in 2004 and the first half of 2005. “After this respite from the rough ride of 2002 and 2003, however, the industry likely will face more obstacles in the second half of 2005 and beyond,” says a report published today.

The rating agency report says the stronger performance was mainly attributable to lower frequencies and a more benign claims environment with no real natural disasters or catastrophic events in Canada.

“Although this operating performance has been quite impressive, we do not believe the current underwriting strength of the industry is sustainable,” says Standard & Poor’s credit analyst Foster Cheng. “Results seem to indicate the beginning of a softening market.”

P&C insurers face challenges such as the potential for claims frequency to return to normal level, escalating automobile claims, softening of commercial lines, the continued low interest rate environment, and the very competitive and regulated landscape, S&P adds.