S&P takes dim view of European insurers fortunes for 2005

Despite improvement in the results posted by European insurers and reinsurers since 2002, next year promises to be a challenging one for the market, says rating agency Standard & Poor’s.
In its report on the European market, S&P says European insurers have dealt with some of the key issues facing them prior to 2002, including: excessive investment leverage; incorrectly priced risks; reserve deficiencies; and poor asset-liability management. “Corrective action has been taken, and several billion euros more capital have been raised via debt and equity issues,” S&P notes.
However, the rater has significant questions about the ability of non-life insurers to maintain price discipline moving forward. “As rates have now peaked, Standard & Poor’s expects results to deteriorate from 2005 In general, Standard & Poor’s is concerned that some players may not have retained sufficient profits at the peak of the cycle to sustain them as the cycle turns.”
S&P says it will keep a keen eye on insurers’ willingness to forsake marketshare for underwriting performance. “Only a clear demonstration of sustained pricing adequacy by line of business will change Standard & Poor’s view that non-life results will weaken.”
At the same time, European insurers will have to deal with the fallout from the high level of third quarter catastrophes related to severe weather, as well as the investigation of New York Attorney General Eliot Spitzer into market conduct, albeit to a lesser extent than their U.S. counterparts.