Standard & Poor’s warned that Taiwan’s property and casualty insurance sector is “likely to face a tough year in 2002 due to hardening rates and structures offered by the global reinsurance market and reduced reinsurance capacity,” and indicated that some ratings might be lowered.
S&P noted that the island’s insurers have “historically relied heavily on reinsurance, partly due to its high exposure to catastrophic risk events such as earthquakes and typhoons.” The market, however, “has contracted considerably in recent years as a result of a hardening in the global reinsurance market and a poor underwriting loss performance in the domestic market, especially in the non-motor insurance segment, because of catastrophe-related losses.”
While S&P said it would review each individual company’s “performance and reinsurance arrangements,” the negative impact on the financial strength of the sector, “raises the possibility that Standard & Poor’s may have to lower its ratings on some companies.”
The trend, which S&P said it had been following for several years, has accelerated recently with even Taiwan’s stringer insurers paying higher premiums for reduced reinsurance coverage. “Weaker companies, which are already susceptible to pressure on their earnings and capital in Taiwan’s competitive environment, are likely to find it particularly difficult to confront this continuing challenge, S&P said.”
It summarized its o
verall concerns that Taiwanese insurers would have “higher retained losses and earnings volatility, and possible gaps in reinsurance coverage or increasingly aggressive reinsurance structuring in the years ahead, which could expose weaknesses in balance sheets.”
These were in part counterbalanced “by the fact that many companies in the sector are generally well capitalized, “but as the island deregulates the insurance industry, “Taiwan’s property and casualty insurers need to improve their underwriting management especially in a market with catastrophic risk exposure but with falling reinsurance support,” S&P warned.
The rating agency is also concerned that certain companies will not meet new capital requirements by the end of the year, which could lead to a consolidation in the industry, and would affect individual ratings.
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