15 September 2015 News

Willingness to adapt has protected ratings

A willingness by reinsurers to change strategy and tap new markets has resulted in the expectation that many firms will maintain their current credit rating.

Analysts from rating agency Standard & Poor’s (S&P) told Monte Carlo Today that the flexibility demonstrated by the reinsurance industry and the willingness to embrace new products and markets have played a big role in securing current standings.

“We don’t expect to see ratings changing as companies are switching some risks and changing the type of business they are writing and moving into new global regions,” said S&P financial services director Dennis Sugrue.

“Larger companies are leveraging their positions with their clients and generally the market is responding in such a way that ratings would remain stable even in light of a big event occurrence.”

However, in common with the message coming from other rating agencies, he thinks pricing in the reinsurance market will remain soft.

“Pricing will be tough into next year but we don’t expect to see the falls of up to 10 percent that the market has recently witnessed,” he said.

“It is difficult to talk in terms of a ‘cycle’. The market is so fragmented it is more relevant to talk about a lot of mini-cycles so it is hard to envisage an event moving the entire market.

Even if a major event did occur the industry is well enough capitalised to absorb it.”

Sugrue also warned that a merger was not necessarily the quick route to rating nirvana.

“If the benefits of the merger can be achieved then there is recognised strength. But achieving those things is often more challenging than some people consider and the insurance industry has an unenviable record here, although there are some companies that are pros and do it quite well. We tend initially to view any new merger cautiously,” he said.

In a separate report released yesterday (Monday September 14), S&P said it believes heightened regulatory requirements are likely to change the global insurance industry's competitive landscape over time.

The sector is already suffering from a prolonged period of low interest rates and softening pricing but the report, Regulatory And Economic Uncertainty Isn’t Stopping Global Multiline

Insurers’ M&A Pursuits, suggests this group of companies can cope.

“We believe this group can navigate these challenges better than most. Global multiline insurers’ strong enterprise risk management capabilities, dominant market presence, and financial wherewithal provide enough ammunition to fire on all sides, including mergers and acquisitions, product shuffling, and opportunities to shed costs,” said S&P’s credit analyst Tracy Dolin.

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