Daily briefing: Monday - S&P holds fire on insurer ratings

Sighs of relief will have been breathed at head offices across Europe today with Standard & Poor’s announcement that it is affirming the ratings of Allianz, Aviva and AXA.

The three insurance groups had been on negative credit watch since December, effectively meaning that S&P was making up its mind about whether or not to issue a downgrade. It hasn’t been shy of doing so with their peers, downgrading eight of them in January.

The impact of a downgrade on an insurer’s business can be huge, as brokers have to question whether it is still responsible to place business with them – as Groupama saw only too well last year.

Not out of the woods yet

So, today’s news was very welcome, but S&P has been clear in its message. This is only a stay of execution. While it has removed the negative credit watch, S&P has issued a negative outlook for all three – effectively a warning that the ratings may fall under later review. Its commentary points to significant exposure to European sovereign debt, and capital adequacy already weakened by the events of last year.

As yet, optimism would be misplaced. Frustratingly for the management teams of these and other insurers, there is little they can do. The market must watch events in Europe closely as the political and economic decisions taken there in the next few weeks and months will determine its short- and probably medium-term future.

Signs of broker deals to come

Despite these wider economic uncertainties, private equity seems increasingly optimistic about UK general insurance brokers as an investment. A&A Group has secured backing from Darwin Private Equity for a management buy-out, and is likely to be followed soon by Groupama’s Lark and Bollington.

It’s promising for the sector that private equity sees value here again, and could signal the start of a rush of deals.