Capital crunch and cat claims still plague reinsurance market: S&P

Despite hardening prices, the reinsurance industry continues to be dragged down by the lack of capital and prior years’ claims development, according to rating agency Standard & Poor’s.In its 2003 Global Reinsurance Outlook, S&P says that while some companies are benefiting from price increases, a large part of the industry remains in a troubled state. “To an outside observer, and indeed to some within the industry, the prospects for the next few years appear bright,” says Stephen Searby, global reinsurance sector specialist at S&P in London, “but ratings remain under pressure.”Cat losses in 2001, including the September 11 terrorist attacks, along with weakened investment returns and reserving for prior years’ claims such as long-tail asbestosis claims, have put the industry in rocky condition. Despite the introduction of US$20 billion in new capital after September 11, over US$8 billion went to start-up ventures, highlighting the difficulty established players are having replenishing lost capital. “These startups, free from the legacy of poorly priced business in prior years and currently concentrated in short-tail lines of business, are achieving sterling results,” states an S&P release. “The ease with which they have been set up and capitalized is a function of the relatively low barriers to entry in the reinsurance industry.”