Global reinsurance outlook stable

The global reinsurance industry’s outlook has been revised from negative to stable indicating little near-term movement in ratings or outlooks, according to two reports recently published by Standard & Poor’s Rating Services.
The reports “Strong Industry Fundamentals And Resolution Of Hurricane Fears Signal Stable Outlook For Global Reinsurance” and “Industry Report Card: Global Reinsurance Companies Bounce Back From A Catastrophe-Riddled 2005” indicate the sector is benefiting from an improved operating environment. According to the studies, the improved conditions will be buoyed by a reduction in the cyclicality of the industry as well as improvements in regulation, risk management, and transparency.
S&P’s says the January 2006 renewals indicate strong pricing as well as global and diversified portfolios.
“The industry has managed the massive losses of the 2005 hurricane season and is enjoying the profits and healthy balance sheets that have resulted from a continued hard market,” S& P’s credit analyst Simon Marshall says.
The report indicates that while the influx of US$7.4 billion in new capital from start-ups in late 2005 was a compensatory factor, the new companies have actually served to dampen the hard market.
Another challenge for the industry, S&P’s says, is the squeeze on retrocession capacity. S&P’s says that this is however, partly offset by the increased availability of alternative methods of risk transfer such as “sidecars,” catastrophe bonds, and other forms of securitization.
While the stable outlook reflects the current, predominantly stable nature of ratings on reinsurance companies, S&P’s says it recognizes the industry is in a dynamic state and the reverberations of the hurricanes will continue to be felt in the April and July renewals.
“Improvements in modeling, underwriting, and pricing are bound to follow the catastrophe losses of 2005, but whether these will be sufficient to drive down volatility remains to be seen,” S&P’s credit analyst Laline Carvalho says.