Standard & Poor’s downgrades global reinsurance outlook

Standard & Poor’s Ratings Services has revised its outlook on the global reinsurance industry to negative from stable, the company has announced.”The negative outlook implies that downgrades are expected to outnumber upgrades in the remainder of 2005, although the number of downgrades is expected to be modest,” the company indicated in a release. “The negative outlook reflects the near-term strains on financial strength arising from the impact reported by reinsuerers of the most expensive loss event in the industry’s history, Hurricane Katrina. “It also factors in the uncertainties that necessarily surround the company’s estimations of the effect of an event of Katrina’s size and type.”Furthermore, the impact of Hurricane Rita, although likely to be limited compared with Katrina, compounds Standard & Poor’s concerns.”The company indicated it will review its outlook on the global reinsurance industry when the impact of Katrina, which is estimated to have caused anywhere between US$40 billion and $60 billion in insured losses, is clearer and when the hurricane season has run its course.As of Sept. 28, Standard & Poor’s placed reinsurers Swiss Re, Transatlantic Re, IPCRe, PXRE and Renaissance Re on CreditWatch with negative implications (although not solely due to catastrophe losses). The U.K.-based Lloyd’s insurance market is also on CreditWatch with negative implications. Montpelier Reinsurance Ltd. carries a negative outlook.The Endurance group and Arch Capital group Ltd. carry positive outlooks.”The impact of Katrina and Rita on financial strength is expected to be moderately negative,” the company announced. “Concerns include the operating performance of the industry in 2005 and the flexibility of those wishing to raise new capital; the availability and affordability of retrocession cover for such events for the remainder of the year and beyond; and the apparent growing frequency of such large loss events and the difficulties inherent in modeling and pricing such risks adequately.”