Ratings in the European insurance and reinsurance market will be more stable during 2004 than in the previous two years, said Standard & Poor’s (S&P) rating service in a new report.
However, the outlook for several business sectors remains negative, indicating that rating actions will continue in a downward trend, it said.
The report, based on the top 20 insurance and reinsurance groups for investors and broker interests in Europe, said that stronger performances in 2003 have seen the pace of rating actions across the market slow since last November.
“A similar, aggregate underwriting performance to that of 2003 is expected for 2004 and the negative impact of investment markets and weak underwriting prior to 2001 is now factored into current ratings,” said S&P credit analyst Hans Wright.
“Consequently, the slower pace of rating actions that has emerged since November 2003 is likely to continue throughout 2004.”
Despite general improvements in the industry’s aggregate operating result, reported profits have varied widely, with negative pressures remaining prevalent in certain sectors of both the life and general insurance markets, said the rating service.
The company predicted that the next three years would see new challenges for insurers, thanks to changes in accounting and regulations.
“Initiatives including the International Financial Reporting Standards, Solvency II, and Basel II, among others, will undoubtedly result in increased costs for insurers as new reporting systems and modelling capabilities are developed and implemented, affecting product pricing and product structures,” said Wright.
Ratings are also being pressured by an increase in restructuring operations, said S&P. “Most insurance groups across Europe are now either radically restructuring their operations or moving to reduce their costs in line with reduced revenues.
“Due to the execution risks associated with the delivery of such plans, Standard & Poor's has decided to retain many of its negative market outlooks,” concluded Wright.
