Outlook stable for reinsurance industry: S&P

Despite 2011’s heavy insurance losses from massive catastrophes, Standard & Poor’s (S&P) has maintained a stable outlook for the global reinsurance industry because of the surplus capital and strong enterprise risk management capabilities of reinsurers.

But S&P notes that while the sector as a whole has excess capital, “individual companies vary widely in their capital levels”.

The international ratings agency also notes that reserve releases that have supported the sector’s earnings in recent years are likely unsustainable and future earnings will be limited by low interest rates and a relatively weak macroeconomic environment. While the sector has seen some rate increases, Moody’s notes that they have not been enough “to declare that we are in a ‘hard market,’ characterised by high-premium rates and tight terms and conditions”.

In a ratings update, S&P also says that the sector’s enterprise risk management strategies are “strong relative to the rest of the insurance industry” which has helped keep insurance and investment losses within risk tolerances for the most part.

The agency says that it is raising its combined-ratio estimate for the reinsurance sector to between 110% and 115%, up from between 105% and 110%. S&P adds that should the industry fail to generate sufficient profitability or if a major shock to industry capital occurs, the view on the reinsurance sector could be revised. The increase, says S&P, is due largely to losses incurred from flooding in Thailand, as well as increased loss estimates from other catastrophes.