S&P Reports European Insurers’ Ratings Stabilizing

November 26, 2004

A report from Standard & Poor’s Ratings Services indicates that its ratings on Europe’s insurers have continued to stabilize during 2004.

“Only five out of the 20 groups covered in this report continue with a negative outlook, compared with just five stable outlooks back in May 2003,” noted S&P credit analyst Hans Wright.

The bulletin indicated: “Nine-month results released to date continue to show an improved performance against 2003. In general, these results have been achieved against stabilized equity markets (the S&P Europe 350 Index increased 9.1 percent in 2003 and is up 6.8 percent in 2004 to date), rising interest rates, hard pricing, and benign claims experience in Europe.”

Wright cautioned that “such favorable conditions make it more difficult to identify genuine improvement in underlying risk management, however, following the tough market conditions in 2000-2002 that exposed several risks, including excessive investment leverage, mispriced risks, reserving deficiencies, and loose asset-liability management.” S&P said that the ratings have stabilized “as management teams have taken corrective action by reducing risks and raising several billion euros more capital via debt and equity issues and asset disposals.”

The rating agency warned, however, that the “third-quarter storms in the U.S. and the current investigation by the New York Attorney General, Eliot Spitzer, into the U.S. insurance industry are clear reminders that insurers cannot rely on favorable market conditions for sustainable profits.” Wright observed that there “always seems to be some bad news emerging from somewhere for insurers, and the potential for future surprises and adverse events is viewed as a normal risk facing the industry.”

S&P concluded that the “knock-on effect on Europe of Mr. Spitzer’s investigation is not yet clear. Certainly, European regulators are responding, although Standard & Poor’s believes the current issues are more damaging for the brokers than the insurers.”

S&P said it is closely monitoring developments for all European insurers and reinsurers with exposure to U.S. commercial lines business. It also noted the that the “financial strength of some insurers and reinsurers is more vulnerable to external factors than others,” and said it therefore differentiates between these insurers with its ratings scale.

“Current key trends driving Standard & Poor’s ratings are risk management, pricing discipline and cycle management, profitability of in-force life business, and new business margins available in the more mature life markets,” Wright concluded.

The report, “Industry Report Card: European Insurance,” is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com, or for non-subscribers on S&P’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search.

Alternatively, call one of the following Standard & Poor’s numbers: London Ratings Desk (44) 20-7176-7400; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5916; or Moscow (7) 095-783-4017.

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