Insurers & reinsurers headed for conflict: S&P

Insurers and reinsurers are on the path to a major conflict over recoverables as reinsurers lag in the recognition of reserve problems, says a new report by Standard & Poor’s.The rating agency says “The warning signs are coming thick and fast, among them Liberty Mutual Insurance Co.’s bad-debt provision, in a recent assessment of asbestos reserves, for 55% of its reinsurance receivables,” notes an S&P release. And raters will respond to the bind primary insurers are facing in light of their anticipation of US$200 billion in reinsurance backing that may not be there.The root of the problem is the reluctance of reinsurers to take actions similar to the primary market in reserving for future payouts. In 2003, reserve increases by reinsurers were way below the colossal actions taken by primary insurers since the fourth quarter of 2002,” notes Laline Carvalho, S&P credit analyst.The report calls “AAA” rated reinsurers “an extinct breed”, noting that insurers are just now reacting to ratings downgrades over the past few years by requiring higher levels of collateral to be posted by reinsurers.