S&P Report Examines ‘Cycle Downturn’ Impact on Reinsurers

November 1, 2007

Standard & Poor’s Ratings Services has published “Cycle Downturn Doesn’t Have To Mean Plummeting Profits For Savvy Reinsurers.” The study examines the situation after 2006, which is seen as the “peak underwriting year in the current reinsurance cycle.”

S&P has attempted to determine whether reinsurers will experience “a drop in profits,” as they usually have throughout past cycles, or whether the smart ones “will make the best of a bad situation.”

“This year has been relatively unaffected by natural catastrophes, so assuming there are no end-of-year surprises earnings should be strong,” explained S&P credit analyst Taoufik Gharib. “However, competitive pressures have emerged, and the softening cycle is already underway.”

As S&P states, 2006 was indeed a banner year for the reinsurance industry, with many companies recording “record underwriting profits,” as they “benefited from strong price increases in property lines, stabilizing rates in casualty lines as a result of an active hurricane season in 2005 in the Gulf of Mexico region, and tightened terms and conditions.”

S&P also noted that some of those “rate increases in the North American market spilled over to markets such as Europe, which helped boost earnings for the global players.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’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; under Credit Ratings in the left navigation bar.

Source: Standard & Poor’s

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