S&P: Reinsurance Sector '05 Outlook Stable

S&P: Reinsurance Sector '05 Outlook Stable

NU Online News Service, April 8, 4:23 p.m. EDT?The global reinsurance sector should remain stable for the rest of the year, according to a report issued by Standard & Poor's.[@@]

Some downgrades may occur, but upgrades will be "few and far between," the rating firm said.

"The 2004 reporting season shows a respectable performance despite the U.S. and Japanese storm activity of the third quarter, with an improvement in risk-based capitalization and more gentle declines in pricing than had been expected," according to the report.

But S&P found that the positive factors were offset by further adverse reserve development in 2004 and the question of whether underwriting discipline can be maintained. In addition, the investigation by New York Attorney General Eliot Spitzer into insurance industry practices will also remain a factor, the report said.

"With prospective quantity and quality of earnings being crucial arbiters of reinsurers' financial strength, the indication that wholesale softening has not taken place is key to the outlook for the sector," S&P wrote.

Concerning the 2004 Florida hurricanes, those accounts impacted have not been able to pass through significant price increases. "The renewal of the Florida accounts on July 1 will be important for a more accurate picture," said S&P credit analyst Stephen Searby.

He added, "For property lines where general price declines have been recorded, rates still appear to be at economic levels and other terms and conditions have remained intact."

Mr. Searby also said that adverse reserve development remains an enduring issue. "While most of the issues relate to accident years prior to 2002, we also note that many U.S.-domiciled reinsurers reported adverse development for the 2002 accident year," Mr. Searby said. "And while that remains a profitable year, the initial overestimation of profits by some reinsurers is a concern."