S&P maintains negative position on European reinsurers

Rating agency Standard & Poor’s has maintained its negative outlook position of the European reinsurance market based on the industry’s 2000 financial returns. If anything, the rating agency notes, the financial strength ratings of companies may be downgraded. Although the European reinsurance market notched up 9% growth in premiums for 2000, Standard & Poors believes the price corrections taken were "patchy" and inadequate to rising losses. The agency’s associate director of financial services rating group, Stephen Searby says, "the continued poor performance in 2000 was largely due to the fact that, although 2000 was a relatively benign year for catastrophes, continued loss development from the European storms in 1999 and losses in some long-tail books impacted many reinsurers’ results".Standard & Poors does not expect 2001 will show much improvement for European reinsurer results. The market is unlikely to return to a "technical profit" until the 2002 financial year at earliest, it observes. "Although rates are expected to continue improving, claims incidence over the past few years has taken its toll. As a result, there is no longer such sufficient level of reserve redundancies in the market in 2001 to cover any significant loss events or adverse reserve development on earlier years, Searby comments.The worsening financial environment facing European reinsurers has prompted increased merger and acquisition activity, the rating agency says. Specifically, it refers to the recent announcement by Zurich Financial Services to spin off its reinsurance operation. "Merger and acquisition activity also remains prevalent in the market. In particular, the market is seeing primary companies reorganize or divest themselves of their reinsurance subsidiaries."