NU Online News Service, Sept. 1, 3:35 p.m. EDT
Europe's property and casualty insurers will be challenged to increase profitability for the remainder of this year, reinforcing the negative outlook Moody's Investors Service has on the sector.
In a special comment from its London office, Moody's analyst David Masters said, "Moody's considers that European insurers' [first-half] 2010 results represent a period of contrasting quarters, at least for the investment markets. [The first quarter] generated generally positive investment results, which were offset by significant market volatility in [the second quarter.]"
Mr. Masters authored a report titled "European Insurers' H1 2010 Results: Capital and Earnings Stabilize but Market Conditions Remain Challenging," which states that European p&c insurers' results will remain challenging over the near term due to generally flat combined ratios for primary insurers in the first half of this year and deteriorating results for reinsurers following unusually heavy natural catastrophe losses.
However, this picture is not uniform across markets. Mr. Masters said some markets are witnessing significant premium-rate increases, such as in the United Kingdom and Ireland. Others remain soft, such as the German motor sector, despite meaningful levels of claims inflation.
Moody's said life insurance margins showed a slight worsening for the first half of the year, despite increased sales volume. The report noted that the deterioration was caused primarily by changes in insurers' business mix rather than by deterioration in underlying profitability.
The report goes on to note that insurers' ability to issue debt "remains subdued" despite better access to capital markets compared to the same period last year when only the largest insurers were able to access the markets.
The ability to issue debt will increase over the coming quarters as Solvency II (the new financial regulations in Europe) evolve and further industry consolidation occurs, the report suggests.
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