A.M. Best Reports: Reinsurers' Financial Strength Under Pressure Despite Hard Market; Industry Undergoing Radical Change.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Sept. 8, 2003 The financial strength of reinsurers has been under a sustained period of pressure, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. A.M. Best's special report on the property/casualty reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. industry, "Global Reinsurance." A range of interacting issues are driving these market conditions, A.M. Best said. They are: -- Reductions in capital following losses on equity portfolios, adverse development in casualty lines and the World Trade Center loss. -- Limited willingness of institutional shareholders to restore capital reflecting both the demand for maximum returns on capital provided and fear of further adverse development. -- Low levels of likely investment returns given the interest rate environment. -- Improved underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. performance but doubts that this will be sufficient to support high levels of risk-adjusted capital adequacy over the cycle. These factors are leading to radical changes in the industry. In particular, some major insurance or financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. groups have reduced their commitment to reinsurance, leading to market withdrawals and reduced ratings where parental commitment is a rating factor. In addition, to defend their own risk-adjusted capital position, some professional reinsurers have been reducing risk exposure by moving out of some lines, territories or even businesses. The upside Upside The potential dollar amount by which the market or a stock could rise. Notes: This is basically an educated guess on how high a stock could go in the near future. See also: Bull, Downside , however, is the ongoing global hard market. While property pricing may be beginning to soften, this is typically from rates well above the technical level. Casualty, meanwhile, continues to firm in many lines, although absolute quality of current pricing remains uncertain given the ongoing potential for adverse development from the 2002 and 2003 accident years. Major beneficiaries of this environment to date have been the start-up reinsurers. Pricing levels have allowed business plans with very conservative current and prospective capital, supporting both market acceptance and ratings. Moreover, the lack of historical tail means underwriting performance is a pure play on 2002 and 2003 pricing, leading to extremely good initial results. At this point, any softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. appears largely controlled, although some strong regional competition is emerging. But the next 12 to 18 months will be crucial. If the major players start using their scale in the market to put pricing pressure on smaller rivals, then discipline could evaporate e·vap·o·rate v. 1. To convert or change into a vapor; volatilize. 2. To produce vapor. 3. To draw or pass off in the form of vapor. 4. . Equally, if the start-ups use their clean balance sheets Clean Balance Sheet Refers to a company whose balance sheet has very little or no debt. Notes: A company is told to "clean up" its balance sheet if they are exposed to large amounts of debt. to enter new lines via pricing, especially casualty, the move back to irrational prices could all too easily be triggered. The senior management teams of both groups are adamant such developments will not occur. But the industry has been here before, and there must be some doubt. If significant softening does happen, then the current reduced levels of financial strength will come under still further pressure. In addition to an overview of the global industry, A.M Best's reinsurance report provides a ranking of the world's 35 largest reinsurance organisations and commentary on the following individual property/casualty reinsurance markets: -- Bermuda -- Continental Europe Continental Europe, also referred to as mainland Europe or simply the Continent, is the continent of Europe, explicitly excluding European islands and, at times, peninsulas. -- Lloyd's and the London Company London Company, corporation composed of stockholders residing in and about London, which, together with the Plymouth Company (see Virginia Company), was granted (1606) a charter by King James I to found colonies in America. Market -- United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. BestWeek subscribers can download printed copy of the full 20-page special report for $25 or a combination of the printed report plus a spreadsheet file of the report data for $100 from www.bestweek.com. Nonsubscribers can download a printed copy of the full report for $75 or a combination of the printed report plus a spreadsheet file of the report data for $200 from www.bestweek.com. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
|
||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion