S&P: European Insurers To Face More Downgrades

Allianz AG, headquartered in Munich, Germany, was the latest European insurance giant to post disappointing quarterly profit figures. The company posted this week a net loss of 520 million euros ($566.8 million) for the 2003 first quarter, mostly because of its investment and loan losses that amounted to 2.30 billion euros ($2.51 billion).

"From an operating point of view, fiscal year 2003 has seen an encouraging start," said Helmut Perlet, who is responsible for controlling and accounting on the board of management of Allianz.

However, Mr. Perlet noted in a statement that in light of the continuing uncertainties in the capital markets and the economy, "the situation remains serious."

Commenting on the overall European insurance sector, S&P credit analyst Rob Jones noted that one-third of the insurers included in the S&P report have suffered downgrades since Dec. 12, 2002. These downgrades, he added, reflect the cumulative negative factors that have built up within the insurance sector over the past few years.

He noted that while the outlook for nearly 40 percent of insurers included in the report is now "stable," up from 12 percent last December, 50 percent of issuers still remain on a "negative" outlook, which indicates "an expectation that further downgrades may occur."

And with weak earnings, depressed capital adequacy and financial flexibility (the ability to source new capital and liquidity relative to requirements), the quality of management, strength of business franchise quality and prospective earnings have taken on increasing significance for credit quality, Mr. Jones said.