European insurers outperform market in 2004: S&P

European insurers reported profit growth of more than 15% in 2004, outperforming the S&P Europe 350 Index, says rating agency Standard & Poor’s.
S&P expected improved results for insurers in the region last year, on the back of strong non-life underwriting, reduced costs and lower credit losses and impairments on investments.
However, the rater warns that upgrades will still be hard to come by in 2005 as non-life premiums soften, life insurance margins are pressured by low interest rates and increased longevity, and mergers and acquisitions heat up.
“Standard & Poor’s believes that management teams are better equipped to manage financial strength in tougher market conditions, with leaner cost bases, refocused operations, strengthened asset-liability management, and the emergence of broader risk management systems,” the “quarterly report card” on European insurers notes. “Nevertheless, these new processes and operational structures need to be tested before credit for a genuine reduction in risk can be recognized in ratings.”
Of the non-life market in particular, the rater notes, rates began to soften in 2004, and premium growth will likely slow or even reverse in 2005 and 2006, but underwriting results will likely hang in until 2007. However, these profits will need to compensate for losses between 2001-2003, and companies remain challenged by continued reserve strengthening due to long-tail exposures dating prior to 2002, specifically on U.S. exposures.