Daily briefing: Thursday - No one wants a B grade

The eurozone debt crisis is continuing to whittle away rating agencies’ confidence in insurers’ ability to pay creditors and claimants.
 
On Tuesday, rating agency Standard & Poor’s downgraded eight European (re)insurers. Among them were Spanish insurance powerhouse Mapfre, which saw its group rating drop two notches to BBB+ from A-, and Generali, which also suffered a two-notch cut to A+ from AA-.
 
The rating actions were prompted by S&P’s downgrade of nine of the 17 eurozone countries’ sovereign ratings at the end of last week.

Staying in the A range

This seemingly persistent erosion is not good for the industry’s self-esteem. Ratings are a touchy subject. On the reinsurance and commercial insurance side, they are the main benchmark that brokers and clients use to determine whether they are worth doing business with.
 
While elsewhere in the financial world ratings above BB+ are considered creditworthy, buyers of commercial insurance and reinsurance – and their brokers – are more picky. Here, the cut-off point is the A range. If S&P downgrades you below A-, you can find yourself ejected from broker panels and haemorrhaging gross written premium.

Not finished yet?

There could be more downgrades of big names to come. S&P has still not decided what effect its recent round of sovereign downgrades will have on the biggest European insurance groups: AXA, Allianz and Aviva.

These companies are more tricky because, unlike Generali and Mapfre, which are heavily weighted to their home markets of Italy and Spain, AXA, Allianz and Aviva are more pan-European. The UK’s sovereign rating has not been downgraded, for example, but that might not stop Aviva taking a hit, as it holds a large cache of Italian debt.
 
However, the downgrade threat for these groups needs to be put into perspective. S&P rates Allianz AA, and Aviva and AXA AA-. It would need to make some severe cuts to put any of these groups in danger.

Munich Re outlines cruise ship losses

Loss estimates for the Costa Concordia cruise ship disaster are continuing to roll in. The most recent announcement has come from Munich Re, which is expecting losses in the “mid-double-digit million euro range” which, while Munich Re has shied away from giving figures, probably means between €40m and €60m – or between 4%-6% of the maximum loss predicted by Espirito Santo analyst Joy Ferneyhough. 
 
This announcement supports the assertion that the potential $1bn loss is spread widely around the market, and will not cause any individual companies a major headache.