Rate Firms Call World RE Market 'Stable'

By Caroline McDonald

NU Online News Service, Sept. 13, 4:05 p.m. EDT, Monte Carlo?Two major ratings services announced yesterday that they have revised their outlooks for the global reinsurance market to stable from negative.[@@]

Standard & Poor's Ratings Services cited improved accident-year profitability in 2003 as well as good earnings prospects for 2004 and 2005. Moody's Investors Service said its outlook reflects a lower level of concern regarding the adequacy of reinsurers' and their primary insurance cedants' reserves.

S&P noted that the mettle of some of the more recently formed reinsurers will only be demonstrated by their resilience to large losses. Those reinsurers, the rating agency said, may be tested sooner than anticipated if the hurricane season produces more large storms on the level of Hurricanes Charley and Frances. The effects of Ivan remain to be seen.

S&P analyst Steve Dreyer, located in New York, said S&P is looking at Ivan more warily than the first two because of the restrictions on Florida Hurricane CAT Fund support. The fund was created after Hurricane Andrew to draw reinsurers back into the state.

"Our understanding is that the catastrophe fund covers one reinstatement, so that would be Hurricane Frances" for most primary insurers of homeowners insurance, he told National Underwriter.

If companies are "hit by all three of these hurricanes, the CAT fund will not be there," he said. He added that reinsurers managed to avoid big losses with Hurricane Charley but that "Ivan has the possibility of looking very different than the other two." One reason is that where it will hit, at this time, is unknown.

He said that USAA Insurance was hit hard by Hurricane Andrew because the storm damaged an Air Force base in south Florida. He observed that "Pensacola is a big military area in the panhandle. If Ivan hits there it could hit them a little heavier."

Moody's analyst Alan G. Murray, out of the London office, told NU that "we'll have to wait and see. I think the real aspect here is the fact there have already been three and it is only the 12th of September and the main hurricane season is [the rest of] this month."

The analysts agreed the Hurricane CAT fund will be of some help as well as the Citizens Property-Casualty Fund, a primary company writing wind-only coverage regardless of the number of storms.

"It's a help to move risk out of the private insurance company universe," said analyst Alan G. Murray, who works in New York.

The stable outlook indicates that the majority of insurer financial strength ratings are more likely to remain the same than to change, said S&P credit analyst Stephen Searby in a statement. This "reflects participants' resolve to keep prices at economic levels."

Also affecting parts of the industry are the premium rate changes experienced by longer tailed writers, S&P said. The negative outlook of Swiss Re, it said, reflects some uncertainty as to what extent pricing improvements in longer tailed liability business will endure beyond improvements achieved by shorter-tailed lines.

Reductions in exposure because of good risk management and the impact of falling prices could result in reductions in premium volume for buyers, S&P said.

Moody's said after numerous rating downgrades over the past few years, it considers the rating outlook for the reinsurance industry to be stable. Over the next 12-18 months the number of rating actions is likely to be moderate, it said, and driven more by specific characteristics of individual firms than by industry-wide conditions.

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Rate Firms Call World RE Market 'Stable'

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