Short-term earnings prospects for the global reinsurance industry are very bullish thanks to surging premium rates, Standard & Poor's (S&P) has said in a new report.
The international ratings agency's report said the unprecedented amount of capital flowing into the reinsurance markets supported the positive performance outlook for 2002 and reinsurer's ratings in the wake of terrorism payouts.
But, it added that such inflows could probably not be sustained and the rise in pricing would slow in the long run.
Standard & Poor's New York director of insurance analytics Donald Watson said: "Reinsurers will benefit from price increases across the board.
"In spite of much narrower stipulations regarding payments to primary insurers, including terrorism exclusions, price hikes will average 25%-30%."
The report, "Reinsurance Outlook 2002: Pricing Surge Bullish For Earnings", said this opportunity had not been lost on the investment and lending communities.
The new capital has been used to replenish the funds that existing reinsurers paid out after the 11 September terrorist attacks and to start new companies, especially in Bermuda.
The report said by the end of 2001, approximately $18bn (£12.4bn) will have flowed into existing operations and a further $6.5bn (£4.5bn) will have gone into Bermuda startups. That is a similar amount to the net loss estimates from 11 September.
It added that of the 12 large reinsurance groups that S&P placed on CreditWatch after 11 September, four had been removed and their existing ratings affirmed. CreditWatch is S&P's mechanism for placing a company under increased surveillance for possible rating action within three months.
The report said it expected the global reinsurance industry combined ratio (measuring payout costs and expenses as a percentage of a reinsurer's premium incomes) to outperform its 10-year average of 105% in 2002.
Bermudan reinsurers are expected to lead the pack with combined ratios of better than 90%, while US reinsurers are expected to post a ratio of 103% and European reinsurers 105%.
These measures belong in the context of a global measure that increased sharply to around 113% in 1999 and 2000 from just over 100% in 1997, as reinsurers funded underwriting losses with plentiful investment income. The combined ratio is projected at 140% for 2001, reflecting losses to terrorism.
