S&P Reports on European Insurers

June 24, 2005

Standard & Poor’s Ratings Services has published its quarterly report covering the leading European insurers – Industry Report Card: European Insurance. The study concludes: “The current picture for the market is stable with good results expected to continue in 2005, but it also identifies trends that will have a significant impact on the bottom line in the future.”

S&P notes that reported quarterly results continue to show positive earnings momentum. “Non-life results remain excellent, and we expect 2005 to be a record year for underwriting profits,” observed S&P credit analyst Hans Wright. “Investment conditions also continue to be favorable, with limited exposure to the Ford and GM debt downgrades and higher interest rates generally having a positive impact for insurers.”

S&P said it had upgraded four ratings in the second quarter of 2005: “Swiss Life Holding and Eureko B.V. were upgraded as a consequence of a change in the application of insurance criteria rather than any fundamental improvement in credit risk. The ratings on German insurers Gerling-Konzern Allgemeine Versicherungs-AG and Gerling-Konzern Lebensversicherungs-AG were raised as a result of the steady progress made in reducing risk exposures and the companies’ further improved operating performance. The majority (66 percent) of all insurer financial strength ratings in Europe remain stable.”

S&P concluded, however that “premium rates in 2004 and 2005 for the non-life market are softer in real terms, so underwriting losses are expected to deteriorate based on business written today. Wright indicated that “ratings will be driven by the ability to maintain underwriting discipline in the face of weaker pricing. Continued resilience over the next 12 months could be positive for ratings. For now, those companies that are able to demonstrate superior discipline may command a positive outlook, but upgrades would not be expected at this stage in the underwriting cycle.”

In the life sector S&P found that “pricing on new business is more rigorous, with more active asset-liability management and cost reduction programs also set to contribute to profit enhancements in the future. The dominant rating factor will be whether life companies can achieve growth at attractive margins without additional risk.”

Comparing life and non-life revealed that the latter has a shorter life cycle, and consequently, “new business performance feeds through to the bottom line more quickly for non-life business than for life business. The question remains whether life insurance performance will improve sufficiently to compensate for the expected weaker non-life earnings. This will be a particular issue for insurance companies operating in both the life and non-life markets.”

The report is available to subscribers of RatingsDirect, S&P’s Web-based credit research and analysis system, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com.

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