Ratings in the European insurance sector are predominantly stable, according to a report–"Industry Report Card: European Insurance"–released today by Standard & Poor's Ratings Services' London office.
Despite continuing debates about defining appropriate measures of earnings and capital, balance sheets are healthy and profitability for most groups is good, S&P said.
"An ability to demonstrate that this situation is sustainable is likely to lead to more positive outlooks and upgrades across the sector during 2006," said S&P's credit analyst Hans Wright.
"Risks to these positive rating developments, however, would be acquisitions or failures in the much improved risk management frameworks being developed by insurers," Mr. Wright said.
Capitalization is stronger after the hard market and recovery in investment markets, S&P said. The rating service added that some managers are now tempted to use their perceived excess capital for acquisitive growth, while others are considering share buybacks.
Risk management of catastrophe exposures was severely tested last year with Hurricanes Katrina, Rita and Wilma, and several companies were more exposed than expected, S&P said. While ratings on European insurers and reinsurers held up, S&P noted that it will be important to see how companies learn from this experience in their risk management framework.
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