Share buybacks and improving enterprise risk management areamong the factors boding well for the European insurance sector inrecent months, according to Standard & Poor's.

The New York-based rating firm said these factors combined withseveral solid underwriting years, healthier balance sheets androbust 2006 results, provided the springboard for a number ofpositive ratings actions and outlook changes in the sector.

"The year 2007 could bring more positive outlook revisions ifinsurers are able to demonstrate that favorable earnings trends aresustainable through the cycle," said S&P credit analyst SimonMarshall.

At present, of the total number of European insurers rated byS&P, 79 percent have been assigned a stable outlook, 16 percentassigned a positive outlook or placed on CreditWatch with positiveimplications, and just 5 percent assigned a negative outlook orplaced on CreditWatch with negative implications.

Share buybacks were announced by both Munich Reinsurance Co. andAspen Insurance Holdings Ltd. in late 2006, marking the first timein recent years that European insurers have returned capital toshareholders.

"The moves reflect the improved positions of balance sheetsafter a number of solid underwriting years," Mr. Marshall said.

S&P's assessment of improving ERM contributed to recentrating actions on Munich Re, Zurich Financial Services Group andAspen. The agency expects ERM to play an increasingly significantrole in ratings, with ERM providing a clear view of where acompany's financial strength is headed.

The report also finds the revolution underway in the supervisionof European insurance that is Solvency II is gathering speed.

"With an eye on expected capital requirements under Solvency II,some have raised, or are preparing to raise, new capital, mostly inhybrid form," Mr. Marshall said.

Others, he added, are refinancing capital instruments with moresolvency-efficient hybrid instruments while they remain arelatively cheap source of finance.