S&P Forecasts a ‘Challenging Environment’ for Global P/C Insurers

August 22, 2007

Standard & Poor’s Ratings Services has issued a report entitled “Global Multiline Insurers Brace For A Testing Second-Half 2007 As Property/Casualty Market Languishes,” on its RatingsDirect service. The title is self-explanatory. S&P indicated that, “despite some recent upgrades, global multiline insurers (GMIs) are bracing for a significantly more challenging environment for the remainder of 2007 as underwriting discipline will be put to the test in a flagging property/casualty market.”

“We are of the view, however, that the ratings on insurance groups covered in this report will remain largely stable, but several areas of concern do exist,” indicated S&P credit analyst Karin Clemens. “Business conditions in the key North American, European, and Asia-Pacific property/casualty markets remain highly competitive and are unlikely to bottom out before year-end 2008.”

However, S&P noted that “premium income in these markets continues to fall, further intensifying competition.” The rating agency also indicated that 2007 will not be as benign as 2006, beginning with windstorm Kyrill in Europe and the UK floods in June and July. Although the report didn’t mention Hurricane Dean, that event will also increase loss claims.

“The ratings on GMIs are expected to withstand these more adverse conditions, but could nevertheless come under pressure if groups with a substantial exposure to property/casualty markets fail to demonstrate strong underwriting discipline throughout the cycle,” Clemens continued.

Another factor S&P cited is the increasing volatility in the capital markets, as “event risk remains on the rise, stemming from increased M&A activity, shareholder demands for enhanced returns leading to more aggressive financial policies, and the expectation of a continued active year in terms of natural disasters.”

So far this year S&P said it has “raised its ratings on three of the eleven GMIs covered in this report.” These included:
— France’s AXA Group to ‘AA/Stable/A-1+’ from ‘AA-/Stable/A-1+’
— Zurich Financial Services to ‘AA-/Stable/A-1+’ from ‘A+/Positive/A-1’.
— Allianz SE and related core entities to ‘AA/Stable/A-1+’ from ‘AA-/Positive/A-1+’.

S&P cited “continuous improvements in business fundamentals, a sustained upturn in operating performance, and a positive view of management,” as the main reasons supporting the upgrades.

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 S&P’s public Web site at: www.standardandpoors.com; select Ratings in the left navigation bar, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor’s numbers: Client Support Europe (44) 20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017.

Source: S&P

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