S&P Report on European Insurance Sector Sees Stable Ratings

April 19, 2006

A new report from Standard & Poor’s Ratings Services Ratings -“Industry Report Card: European Insurance-” has found that financial ratings in the European insurance sector are predominantly stable.

“Despite continuing debates about defining appropriate measures of earnings and capital, balance sheets are healthy and profitability for most groups is good,” said S&P. “An ability to demonstrate that this situation is sustainable is likely to lead to more positive outlooks and upgrades across the sector during 2006,” noted S&P credit analyst Hans Wright.

He added, however that risks to these positive rating developments “would be acquisitions or failures in the much improved risk management frameworks being developed by insurers.”

S&P also notes: “Capitalization is stronger after the hard market and recovery in investment markets. Some managers are now tempted to use their perceived excess capital for acquisitive growth, while others are considering share buybacks. Risk management of catastrophe exposures was severely tested last year with hurricanes Katrina, Rita, and Wilma, and several companies were more exposed than expected.

“While ratings on European insurers and reinsurers held up, it will be important to see how companies learn from this experience in their risk management framework. A political storm is brewing in Europe over prudential margins. This goes to the heart of the way that insurance is regulated in different countries in Europe. Solvency II is rightly bringing this issue to a head with a view to converging existing practices. The strong public positions of the U.K. and French insurance regulators exemplify this issue, which threatens to derail Solvency II in the absence of political intervention.”

The report is available to subscribers of RatingsDirect, S&P’s Web-based credit research and analysis system, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on S&P’s public Web site at www.standardandpoors.com.

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