S&P Evaluates Effect of EU Regulations on Europe’s Insurers

October 24, 2005

Standard & Poor’s Ratings Services has published a study of the effects of new regulations on European insurers, which concludes that the regulations and structural developments within the sector “are creating opportunities for European insurers to operate with more efficient capital structures.”

“Regulatory and structural changes are leading insurers to reappraise capital in terms of quantum, quality, and type, with increasing use of hybrid debt issuance and an appetite for securitization, but less use of intangibles and financial reinsurance,” commented S&P credit analyst David Harrison.

S&P noted that “the impact of new regulatory measures, particularly in the U.K., has triggered the issuance of various forms of non-equity-qualifying capital, both innovative Tier I, upper Tier II, and securitizations. The market for hybrid instruments has been strengthened further by credit spreads at near historical lows over the past 18 months. However, insurance securitization transactions in Europe have been limited to date, with the focus primarily on the U.K. life sector.”

S&P said it considers the climate to be conducive for change, but at a gradual pace. “‘Evolution’ is the appropriate term to describe the nature of development of capital funding within the European insurance sector,” Harrison continued. “There appears to be a life cycle of increased hybrid issuance followed by innovative structured finance solutions. The uptake of these opportunities is relatively slow, and reflects the varying pace of regulatory reform across Europe.”

The report – “European Insurance: Capital Evolution Or Revolution” is available to subscribers of RatingsDirect, Standard & Poor’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. Ratings information can also be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. All Standard & Poor’s research information is accessible for 24 hours after publication on the public Web site.

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