S&P Revises Austrian Insurance Market Outlook to “Stable”

January 22, 2003

Standard & Poor’s announced that it has revised its outlook for rated Austrian insurers to stable from negative, indicating that insurer financial strength ratings are more likely to remain the same than to be lowered or raised.

“Although negative rating activity has been evident in the Austrian market over the past two years due to continued weak earnings, the market’s profitability looks to have stabilized and the rating environment seems to be slowly improving,” said S&P credit analyst Ashley Gill in the bulletin.

S&P noted that during 2001, “there were six downgrades in the Austrian insurance market, representing one-third of Standard & Poor’s ratings coverage in the region. Rating actions slowed in 2002, with only one downgrade, which was based on the stand-alone characteristics of market participants and unrelated to any group impact. Nevertheless, although ratings in the market appear to be reaching a more sustainable level, the uncertain economic environment remains a threat, with any further investment market shocks likely to pressure ratings.”

“Consolidation in 2001 and 2002 will contribute to the stabilization of the market, following mergers between Volksfursorge-Jupiter and Wustenrot in 2001, and, in 2002, between Montanversicherung AG and Wiener Stadtische, and Winterthur and Zurich Kosmos. Announced at the end of last year, the sale of AXA Versicherung AG (Austria) to UNIQA Versicherungen AG will be a further boon to the stabilization of the market,” the bulletin continued. While the consolidation will “assist the recovery of the market and a return to profitability over the long term,” S&P expects that “improvements in companies’ operating performance will be slow.”

The ratings agency noted that “Following premium growth above the rate of inflation in 2001, the non-life sector saw a significant seven-percentage-point improvement in its combined ratio–the main indicator of an insurer’s underwriting profitability–to 111.5%. Nevertheless, there remains some way to go before the sector reaches the 100% break-even point. ”

“Despite an improved technical result in the non-life sector in 2001, there is unlikely to be any significant improvement in profitability for 2002. The summer 2001 floods in Northern Austria, losses from hail storms, and difficult operating conditions in the industrial sector are likely to limit the level of profitability for the sector,” Gill Indicated.

S&P did note that the Austrian life insurance sector had experienced growth above inflationary levels in 2001, and expects to see even stronger growth in 2002, but warned that the current weakened state of the investment markets could affect the industry.

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