Global reinsurers tested in 2005: S&P

Global reinsurers are making bold statements about their desire to stick to strict underwriting principles, but the industry’s resolve will be tested in 2005, says Standard & Poor’s in its most recent “global reinsurance report card”.The rating agency notes that while reinsurers say they will limit exposure in lines where pricing has peaked property/catastrophe, aviation hull, large U.S. property risks this will have to be balanced with the demands of shareholders and brokers, as well as clients, to maintain underwriting volumes.”The rhetoric is encouraging,” says S&P credit analyst Stephen Searby. “It is also critical in order to avoid a repeat of the severe damage done to reinsurers’ financial strength in the last soft cycle.”One area where reinsurers will have to place their focus is the level of their price-monitoring tools, as much as on their own willpower to resist price competition.While reinsurers are likely to face premium volume reductions over the next few years if they stick to their guns, investors should not be frightened away as long as underwriting decisions adhere to good risk management.With shrinking premiums will come the need to trim expenses, something S&P says rating agencies will be keeping a sharp eye on.