S&P’s explains how new reinsurance statups are rated

The insurance industry must not only recover from hits to its earnings and capital resulting from catastrophic events but it must also increase its capacity to meet expected demand, according to a recent article published by Standard & Poor’s Ratings Services. The report “Credit FAQ: Rating The Reinsurance Startups” says this is what is currently happening as a result of Hurricane Katrina. Capacity needs are growing due to increased hurricane activity as well as potential changes in the Terrorism Risk Insurance Act and fears of avian flu among other potential catastrophes, and as such new reinsurance and other types of entities are being launched to segment and contain potential future risk. S&P’s article answers some frequently asked questions about how these startups are being rated. Questioned include: “Does Standard & Poor’s assign ratings to startup companies, and does it intend to assign ratings to the reinsurance startups emerging now?” “Can rating agencies assess management talent effectively for a brand-new reinsurance company, especially when so many new companies are drawing from the same talent pool?” “Are Standard & Poor’s ratings assigned to startups with the intention of enabling those companies to do business?” “For the rating on a company to be useful to its marketing efforts, conventional wisdom says it must be, at the very least, ‘A-‘. Does Standard & Poor’s agree, and if so, does Standard & Poor’s expect to assign ratings at this level to any of the current crop of startups?” “Nonlife property-catastrophe reinsurance is a volatile industry with low barriers to entry,” Standard & Poor’s managing director Stephen J. Dreyer says. “A disciplined and conservative approach to rating startups is crucial for the industry.”The report is available to subscribers of RatingsDirect at www.ratingsdirect.com. Non-subscriber’s can purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com.