S&P: European Sector Strong Despite Negative Trends

November 10, 2003

Rating outlooks across the European insurance and reinsurance markets remain negative despite positive trends emerging in some sectors, Standard & Poor’s Ratings Services said in a report.

“Although industry trends are broadly positive in the non-life and reinsurance markets, ratings remain under pressure due mainly to negative prior-year reserve developments,” said Standard & Poor’s credit analyst Hans Wright. “This is preventing many insurers from taking the full benefit of the current hard market.”

Some of the positive trends extend industry-wide. A degree of stability has returned to investment markets, and companies have gone back to basics, with tighter matching of assets and liabilities in life insurance and more disciplined technical underwriting of new business in all sectors, helped by a hard market in non-life and reinsurance.

“Prospectively, the key rating driver is whether Standard & Poor’s believes that companies have the ability to rebuild financial strength after years of losses and capital deterioration,” Wright said

Earnings are the best source from which to rebuild capital in the long term. However, over the short term, some companies are already proving able to demonstrate financial flexibility (the ability to source new capital and liquidity relative to requirements) to provide added security for policyholders and creditors in advance of delivering significant earnings retention.

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