S&P: Volatility, Regulation Testing Global Multiline Insurers

June 12, 2008

Managers of global multiline insurance companies have their work cut out for them in 2008, according to analysts.

The year 2008 will be one of challenge for global multiline insurers as they simultaneously try to remain profitable in a volatile market, deal with the subprime mortgage crisis and conform to new financial regulations, Standard & Poor’s Ratings Services said.

S&P offered its outlook in a report entitled “Industry Report Card: Global Multiline Insurers Set To Ride Out Volatile Industry Conditions And Regulatory Changes In 2008,” published on RatingsDirect.

“Management teams face the challenge of juggling top-line growth and profitability considerations at a time when competition is intense, the financial markets are particularly volatile, and the macroeconomic outlook is deteriorating,” said Standard & Poor’s credit analyst Karin Clemens.

“At the same time, GMIs have to keep abreast of key changes in regulation and financial reporting around the world as globalization causes accounting and regulatory requirements to converge,” Clemens added.

The S&P rating outlooks for nine out of the 11 groups covered under this report are stable, reflecting S&P’s view that GMIs are generally well positioned to cope with more difficult operating and financial market conditions, while maintaining strong financial performance and sound capitalization.

Looking ahead, S&P said it expects rating outlooks to remain stable throughout 2008 for the majority of GMIs.

However, the headroom at existing rating levels is likely to diminish, as earnings are in danger of losing momentum because of economic slowdowns, weaker financial markets, and soft pricing, particularly in property and casualty insurance, according to the ratings firm. Earnings resilience, sound capitalization, and risk-management capabilities will therefore continue to be the main factors determining the ratings on all GMIs for the remainder of 2008, the firm said.

S&P said it considers the GMIs’ exposure to U.S. subprime-related risks to be manageable, reflecting the companies’ diversified operating profile and strong or very strong capitalization and earnings capacity, combined with sound liquidity positions.

“We don’t believe that the financial strength of the majority of these groups is under imminent pressure,” said Clemens. “However, we could consider negative rating actions should substantial asset impairments, credit losses, or significant claims from directors’ and officers’ policies and errors and omissions coverage disproportionately dampen 2008 earnings or capitalization.”

In addition, S&P said it expects a more subdued financial and macroeconomic environment to directly affect GMIs’ performance in 2008, potentially placing wider-ranging downward pressure on ratings.

Standard & Poor’s

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