Global reinsurance industry remains under dark cloud: S&P

The negative outlook cast by rating agency Standard & Poor’s on the global reinsurance sector remains despite expectations of a profitable 2003.S&P has had a negative outlook on the industry for seven years and continues to foresee more downgrades than upgrades in the near future. “The reinsurance industry is expected to report an overall technical profit for the year-end 2003, even after the impact of prior-year losses,” S&P credit analyst Stephen Searby notes. And strong pricing is being seen in January 2004 renewals. “Nevertheless, negative pressures remain on some ratings in the sector.”These negative forces include a wide gap between the industry’s top performers and those at the bottom, and the impact of the flight to quality as cedents seek out not only financial strength but spread of risk. Prior-year reserve issues remain, specifically in the U.S. market, with the industry likely to make further adjustments relative to asbestos in 2004, although not in the order seen in recent years. S&P also notes diminished parental support for some reinsurance operations which are under performing.Searby expects a combined ratio below 100% for 2003, but individual company results being as much as 70% apart. “The performance of market participants continues to diverge as the catastrophe writers benefit from a benign year, while prior-year legacies and operational difficulties continue to drag down the larger players.”Added to this is the use “rating triggers” by cedents which could backfire, Searby notes, as it forces reinsurers to hold more capital and therefore charge higher premiums.