Standard & Poor's has upgraded its outlook on the global reinsurance industry to stable from negative, saying that the ramifications from the record 2005 insured losses now appear manageable.
"The financial impacts of the hurricanes have indeed been great but have proved manageable, and a compensating influx of new capital to existing reinsurers has occurred, removing fears of the industry's ability to sustain the growth of its balance sheet," said the agency in a report issued today.
S&P estimates an industry combined ratio of approximately 120 for 2005, including 23 points relating to catastrophe losses.
Simon Marshall an S&P London-based analyst noted the diverging fortunes of the European, Bermuda and U.S. reinsurers. Last year, he said, showed something of a reversal of fortune for the European companies who performed better than many of the Bermuda operations.
"The benefits of a global diversified portfolio were made plain in a year of unprecedented catastrophe activity," Mr. Marshall said.
The same held true in Bermuda where those companies with a focus beyond property-catastrophe covers fared better than companies such as PXRE and Montpelier Re who focused on that area primarily.
"Investor and cedent sentiment also seems to have swung in favor of the diversified groups after the first real test of the Class of 2002 [start-up companies], following a benign and consequently highly profitable period since their formation," Mr. Marshall said.
The report also said the January 2006 renewal season was a continuation of the positive trend in prices and terms and conditions. But once again, "there was a clear difference in perception between the largest European reinsurers and the Bermudian and London broker markets," the report said.
In European companies, premium adequacy was sufficient to generate target returns in each business line. "This was even allowing for higher expected losses and higher capital requirements for lines exposed to catastrophe losses," Mr. Marshall said.
London-based S&P analyst Rob Jones said that another trend that emerged this year centered on the value of high ratings, as underscored by Swiss Re in its presentation of the January renewal report.
New York-based S&P analyst Laline Carvalho said that favorable momentum in pricing has appeared so far in the April and June renewal season, and that such progress was critical for many carriers and the industry in general to maintain its current stable outlook.
She expressed concern about Class of '06 start-ups, finding that many are maintaining too narrow a focus in what they write. "In addition, the depth and breadth of the executive talent pool is not comparable to what was available for start-ups in previous years," she said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.