Ratings outlook remains stable for global reinsurance industry

The ratings outlook for general global reinsurers is stable for 2009, a Guy Carpenter bulletin says.
Rating activity was remarkably low in 2008, with outlook changes outnumbering actual rating changes, despite the loss of several billion dollars of capital from the global reinsurance industry, Guy Carpenter says.
The lack of downgrades may seem counterintuitive, but can be explained by the reinsurance industry’s capital levels at the start of 2008. The industry had an excess of US$30 billion of capital at the beginning of the year, the bulletin reports.
The addition of standardized stress tests to rating agencies’ risk-based capital adequacy model over the past few years significantly reduced the number of downgrades following a shock loss, it continued. “Losses incurred from Hurricane Ike generally were within risk parameters.”
Finally, “the rating agencies appear to have proceeded cautiously this year, perhaps to avoid exacerbating the effects of the turmoil in financial markets,” Guy Carpenter says. “They are keenly aware of the house of cards created by debt covenants and reinsurance cancellation provisions based on ratings.”
For the second consecutive year, all four major rating agencies maintained stable outlooks on the global reinsurance industry in the September 2008 reports.
“While they bullishly pointed to stronger balance sheets and record profits to support this stance in 2007, however, they were more circumspect in 2008,” the bulletin says.