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

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

"The year 2007 could bring more positive outlook revisions if insurers are able to demonstrate that favorable earnings trends are sustainable through the cycle," said S&P credit analyst Simon Marshall.

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

Share buybacks were announced by both Munich Reinsurance Co. and Aspen Insurance Holdings Ltd. in late 2006, marking the first time in recent years that European insurers have returned capital to shareholders.

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

S&P's assessment of improving ERM contributed to recent rating actions on Munich Re, Zurich Financial Services Group and Aspen. The agency expects ERM to play an increasingly significant role in ratings, with ERM providing a clear view of where a company's financial strength is headed.

The report also finds the revolution underway in the supervision of 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 in hybrid form," Mr. Marshall said.

Others, he added, are refinancing capital instruments with more solvency-efficient hybrid instruments while they remain a relatively cheap source of finance.

Special Reports /

European Markets Are Thriving: S&P

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