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Credit insurers may be making hay, but for the rest of the industry, the high number of companies failing and defaulting on debts is a worrying trend.

Figures from ratings agency Standard & Poor's issued 55 credit downgrades in the last quarter of 2001.

That's bad, but not as bad as the US, where 179 companies were downgraded.

In fact, problems in the US as well as the threat of all-out war in the Middle East are only going to make matters more difficult in a jittery global marketplace.

Credit insurer Coface is turning away business, but for the rest of the market, it's time to hang on tight and hope customers are still in business this time next year.

In a classic corporate understatement, Standard & Poor's outlook is: "Any deceleration in defaults will be moderate at best."

Which is a bit of a contrast to the quarterly survey of the financial services industry by the Confederation of British Industry (CBI) and PricewaterhouseCoopers.

The CBI says that a wave of optimism is crashing into the City - greater than at any time in the past two years.

Given the comparatively rosy state of some personal lines business, this may not be too surprising.

Disappointingly, general insurers lagged behind finance houses and building societies in optimism.

Sure enough, financial companies selling mainly to individuals reported better recoveries than those with commercial customers.

Profitability has been disappointing despite a general move to cut costs. Costs are expected to keep falling, eventually feeding into healthier balance sheets with greater overall profitability.

Swiss Re's balance sheet is likely to be given particular scrutiny this week. It reported its results on Wednesday, just after Insurance Times went to press.

The company warned back in February that it was in for a net loss of SFr200m (£83m) due to SFr4.2bn (£1.8bn) worth of losses before tax caused by the New York attacks.

Canny investors are likely to be looking for answers to reports of a $500m hole in Lincoln Re's reserves and who exactly is going to pay for this.

Swiss Re's US unit paid $2bn (£1.4bn) for Lincoln Re in December.

On the home front, Royal & SunAlliance (R&SA) shares took a small turn upwards last week after a generally poor few months; hardly enough of a sweetener to take the bitter taste out of Bob Mendelsohn's mouth.

The chief executive took a pay cut last year of £12,000 down to £1.03m after R&SA failed to hit its combined ratio target of 103%. Neither he nor the other directors received a performance bonus.

Indeed, Mendelsohn will be champing at the bit to actually receive a bonus.

Each year he receives a notional allocation of shares worth 1.6 times his salary, which he gets only if the company hits certain targets. But since starting at R&SA, Mendelsohn has missed on each occasion.

Among the targets is a requirement that R&SA's share price must grow by 20% if he is to get the full allocation.

So Mendelsohn must be disappointed to see the company languishing among the worst performing UK insurance shares, according to research by Commerzbank.