The European insurance market is continuing to enjoy a period of stability and profitability according to a report published today by Standard & Poor's Ratings Services.
The report said: "The US hurricane season, further M&A activity, and a reduction in the boost to profits from investment markets could all threaten the market's stability, but we consider that most of the sector is well prepared for these risks."
Standard & Poor's said that while failures are not expected, further large losses because of US storms would create both winners and losers, despite a strengthening of rates over the past couple of years.
The ratings agency said losers would be those more dependent on third parties for recapitalizing and those heavily dependent on reinsurance/retrocession.
Winners would be already well capitalized, with good diversification of risk.
Standard & Poor's credit analyst Hans Wright, said: "Ironically, a quiet hurricane season will damage the pricing environment going forward as buyers will view 2004/2005 as a blip and try to negotiate lower prices."
European insurers and reinsurers are looking at different strategies for development, depending on the potential for internal restructuring and whether existing markets have ability to deliver growth.
Allianz, ING, and Munich Re are continuing to improve results through internal re-engineering, for example, while Swiss Re and AXA have shown an appetite to grow via major acquisitions.
The significant fall in equity markets in the second quarter of this year has provided a timely reminder of the risk to earnings and capital from exposure to equities.
Standard & Poor's considers, however, that insurers are better prepared for volatility than in the past, with less exposure and actively managed downside risk.
