S&P Report: ‘Legacy Issues’ for European Reinsurers Seen as Less ‘Problematical’

November 8, 2006

In a report, Major (Re)Insurers Address Legacy Reserving Issues, While U.S. Hurricane Season Is Quiet, Standard & Poor’s Ratings Services notes that the “most significant development in recent months for European (re)insurers has been an indication that U.S. reserving issues may not be as problematical as once feared, at least for some.”

S&P said: “Three major players have taken steps to deal with legacy issues, and this upside has accordingly been factored into the ratings on these insurers.” S&P credit analyst Simon Marshall noted: “Converium, Lloyd’s, and Royal & Sun Alliance have historically experienced a significant drag on their ratings because of legacy reserving issues. As a result of recent deals struck by these players, Converium has a positive CreditWatch placement, Lloyd’s has a positive outlook, and while the outlook on Royal & Sun Alliance is still stable, we view the resolution of the legacy issue as a positive development.”

S&P cautioned, however, that despite these encouraging developments, issues remain for the sector. “At this late stage in the hurricane season, there have been no significant losses,” the bulletin continued. “This will mean strong earnings for the European (re)insurers, but will also potentially damage the pricing environment going forward. Other critical questions about modeling, pricing adequacy, and underwriting discipline remain unanswered as the renewal season begins.

“The U.K. non-life insurance market faces particular challenges. The motor market stands out as moving toward being uneconomic, and Aviva has already spoken about the need to raise rates. U.K. commercial lines and the German motor market are also under scrutiny, although similar concerns for the rest of the continent have been slower to emerge.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for S&P’s credit ratings, research, and risk analysis, 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 Standard & Poor’s public Web site at: www.standardandpoors.com.

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