Reinsurance Rating Environment Improving

Rating agency Moody’s says it has revised its outlook on the global reinsurance market to “stable” from “negative” on the back of favorable underwriting and investment results emerging from the sector. While rating agencies have mostly issued rating downgrades for reinsurers over the past two years, Moody’s says the ratings environment for the sector should moderate moving forward.

However, the rating agency notes that the credit profile of the global reinsurance industry is not what it once was, with “single-A” and “Baa” ratings currently the norm for most reinsurers. The sector over 2003 and 2004 enjoyed a favorable pricing environment, the rater observes, with improved terms and conditions, with a more stable investment climate. “The business written and earned in the calendar years 2003 and 2004 should be the most profitable business reinsurers have written,” which Moody’s expects the trend to increased underwriting profitability (barring a large catastrophe) will likely extend through to 2005.

As such, Moody’s expects reinsurance pricing will remain strong given the lack of capacity still seen in the retrocessional market. However, the sector continues to be hampered by long-tail legacy issues, notable asbestos. The Bermuda “start-ups” could play a key role in where the global reinsurance sector is headed, the rating agency observes. “Moody’s believes that most start-up management teams and their shareholders are focused on sustaining the strong returns that they have realized in their initial years of operation. However, the steadily softening property risk market, and the flattening casualty market in 2004, will likely test these management teams’ ability to maintain underwriting discipline.”