European Insurer Outlook Stable: Fitch

European Insurer Outlook Stable: Fitch

NU Online News Service, March 26, 3:26 p.m. EST?Fitch Ratings is keeping its "Stable" rating outlook for the European property-casualty insurance sector and is forecasting favorable operating results for the industry over the next 12-to-24 months?attributed to underwriting discipline and profitable premium rates.[@@]

Rate hikes?coupled with a below-average incidence of natural catastrophes?have been the main force behind strong operating results reported by European p-c insurers in 2002 and 2003, especially among insurers writing personal lines, Fitch observed.

The ratings firm said that lower overall investment returns?caused by declining bond yields?combined with the higher cost of reinsurance protection have prompted the European p-c industry to hone in on underwriting discipline.

This emphasis on underwriting profitability, Fitch noted, has been successfully carried out with widespread rate hikes across the p-c sector.

"The need to underwrite for profit has helped to push premium growth rates up sharply in recent years," Fitch analyst Chris Waterman noted in his report.

The European p-c sector's improved underwriting operations are reflected in the fact that many companies are now reporting combined ratios under 100 percent, according to Fitch. Furthermore, many European insurers are enhancing their business efficiencies by focusing on core, non-life business segments and withdrawing from less strategically important operations.

In this environment, Fitch said it is maintaining its "Stable" rating outlook for the European non-life sector and that it is expecting operating results in this sector to be good over the next 12-to-24 months.

However, the ratings agency is assigning a "Positive" outlook for the French marketplace, thanks to its reduction in non-life claims frequency and severity?helped in part by "dramatic improvement" in France's road safety record following legislative changes introduced by the French government.

Fitch also observed that as European reinsurers report their year-end results, the full-year 2003 will prove to have been "a very profitable year" for the European reinsurance industry.

Among the reinsurers that have already posted their year-end results, Munich Re and Converium have reported improved combined ratios of 96.7 percent and 97.9 percent, respectively. In comparison, Munich Re's combined ratio in 2002 was 122.4 percent, while Converium's was 103.7 percent. Mr. Waterman noted that in addition to realizing benefits of the hard market, European reinsurers' technical results for 2003 would reflect "relatively modest" adverse reserve development on prior years, compared to 2002.

But Fitch observed that the 2003-2004 renewal season has shown a mixed picture for reinsurance rates. Casualty lines continued to experience strong rate increases, but aviation, marine and some property lines weakened as "competition began to bite" in the reinsurance sector.

Overall, Mr. Waterman forecast that 2004 will be another profitable year for the European reinsurance industry?assuming normal catastrophe experience and continuing stability in investment markets. He added he also expects this to be the peak of the current underwriting cycle.