Reinsurance holding companies face significant challenges: S&P

In its “report card” on North American insurance holding companies, reinsurers stand out as facing significant challenges, says Standard & Poor’s.
The rater says these challenges come on three fronts, including the devastation wrought by last year’s record U.S. hurricane losses (the impact of which has already been seen on 2004 earnings report by several Bermuda-based reinsurers). At the same time, reinsurers await the outcome of the investigations prompted by New York Attorney General Eliot Spitzer, including those aimed at broker compensation systems and the newer attack on financial reinsurance products. At the same time, reinsurers continue to struggle with adverse reserve development, which have been highlighted most prominently in the problems faced by Converium’s North American operations.
Primary property & casualty insurers also face challenges, S&P notes. The rater comments, “price strengthening has been replaced by
greater price softening because of improved financial results and the
resulting increase in capacity; this trend that is expected to continue
throughout 2005″.
This contrasts with a rosier picture for life and health holding companies. S&P notes life companies have been able to adapt to the trio of “weak equity markets, low interest rates and a weak corporate credit environment”. And health companies are set up for another strong year in 2005, despite price competition on the horizon as a result of industry consolidation and the desire to leverage economies of scale against smaller competitors.