The annual Reinsurance Rendezvous in Monte Carlo, which began last weekend, has put the spotlight on the altogether mixed results the industry has posted over the last three years. Both Standard & Poor’s and A.M. Best have issued reports coinciding with the conference (see International News).
Many companies, including some of the largest, have posted dismal earnings (losses), despite the ongoing hard market conditions. A combination of falling equity markets, extremely low interest rates, and demands for substantial increases in reserves have combined to hammer even the strongest companies, notably Munich Re, the world’s largest reinsurer. Coming on top of the losses from September 11, even a demonstrably strengthening market has been unable to stem the tide.
As a result the rating agencies have been downgrading reinsurers at a rapid rate, in some cases calling their solvency into question. In addition to being just plain bad PR the downgrades increase the cost of raising capital, which the companies urgently need in order to meet the reserve requirements, and to raise their capacity to levels where they can profit from the hard market by writing new business.
Most analysts anticipate that hard market conditions, and increasing premiums, will continue well into 2004. The question remains, however, whether gains in operating earnings and significantly better combined ratios, will be sufficient to overcome the losses of the last three years.
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