December 5, 2002 by Canadian Underwriter
Despite hardening prices, the reinsurance industry continues to be dragged down by the lack of capital and prior years’ claims development, according to rating agency Standard & Poor’s.
In its 2003 Global Reinsurance Outlook, S&P says that while some companies are benefiting from price increases, a large part of the industry remains in a troubled state. “To an outside observer, and indeed to some within the industry, the prospects for the next few years appear bright,” says Stephen Searby, global reinsurance sector specialist at S&P in London, “but ratings remain under pressure.”
Cat losses in 2001, including the September 11 terrorist attacks, along with weakened investment returns and reserving for prior years’ claims such as long-tail asbestosis claims, have put the industry in rocky condition.
Despite the introduction of US$20 billion in new capital after September 11, over US$8 billion went to start-up ventures, highlighting the difficulty established players are having replenishing lost capital. “These startups, free from the legacy of poorly priced business in prior years and currently concentrated in short-tail lines of business, are achieving sterling results,” states an S&P release. “The ease with which they have been set up and capitalized is a function of the relatively low barriers to entry in the reinsurance industry.”