Global multi-line insurers face challenging times in 2008

Year 2008 will represent a challenge for global multi-line insurers (GMIs) due to increased competition, downward pricing and regulatory changes, according to a Standard & Poor’s (S&P’s) report.
“Management teams face the challenge of juggling top-line growth and profitability considerations at a time when competition is intense, the financial markets are particularly volatile, and the macroeconomic outlook is deteriorating, said S&P’s credit analysis, Karin Clemens, in ‘Industry Report Card: Global Multiline Insurers Set to Ride Out Volatile Industry Conditions and Regulatory Changes in 2008.’
“At the same time, GMIs have to keep abreast of key changes in regulation and financial reporting around the world as globalization causes accounting and regulatory requirements to converge.”
Looking forward, S&P’s expects rating outlooks to remain stable throughout the year for the majority of GMIs, a release says. But the headroom at existing rating levels is likely to diminish: earnings are in danger of losing momentum because of economic slowdowns, weaker financial markets and soft pricing (particularly in property and casualty insurance).
The rating agency continues to believe the GMIs’ exposure to U.S. subprime-related risks are manageable, reflecting the companies’ diversified operating profile and strong or very strong capitalization and earnings capacity, combined with sound liquidity positions, the release says.
“We don’t believe that the financial strength of the majority of these groups is under imminent pressure,” Clemens said. “However, we could consider negative rating actions should substantial asset impairments, credit losses, or significant claims from directors’ and officers’ policies and errors and omissions coverage disproportionately dampen 2008 earnings or capitalization.”