U.S. Reinsurance Stability ‘Dependent on Parental Support,’ Says S&P

Standard & Poor’s Ratings Services new assessment of the outlook on the U.S. reinsurance sector finds that it continues to be stable (See related article in “National “), “but only because of parental support.”

The study, entitled “U.S. Reinsurer Mid-Year 2005 Outlook: Sector Outlook Stays Stable–But Only Because Of Parental Support,” found that that “although pricing has declined and–to a lesser degree–the market has witnessed some softening in terms and conditions, the evidence is that the majority of reinsurance contracts are still being priced at economical terms.”

It stresses that the “very strong support shown by parent companies despite poor results in 2004 means a level of ongoing stability in U.S. reinsurer ratings is expected over the medium term.”

“This stability is despite our expectation that reserve additions are likely to continue into 2005 and, to a lesser degree, 2006,” noted S&P credit analyst Laline Carvalho. “However, underlying this stability, there is still a question about when the market will achieve underwriting profitability and whether this profitability is going to be sustainable.”

S&P concludes that the “continued support received by U.S. companies from their stronger parents, most of which are based in Bermuda and Europe, is a crucial factor for the market. Although the level of support varies, the ratings on many U.S. reinsurers would not be as high without the parental input they enjoy.”

S&P went so far s to say: “In fact, without the support of their stronger parents, a much larger number of U.S. reinsurers would have gone into run-off or insolvency over the last four years. Parental support has continued despite disappointing results reported by the U.S. reinsurance market in 2004, with reserve strengthening for prior years and moderate third-quarter 2004 catastrophe losses contributing to the industry reporting another year of underwriting losses.”

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