Dear friend,
On 19 August we put out a story that AM Best had revised its outlook for the reinsurance sector to negative, citing a combination of compressed investment yields, lower underwriting margins and broader terms and conditions which are placing a strain on profitability.
Nothing too surprising there one supposes, the only real question being why it took AM Best so long to come to the party, as it was the last of the rating agencies to go negative on the sector.
What did make me raise my eyebrows instead were the series of rating upgrades released by Fitch - on 20 August -which went positive on Swiss Re and Scor and actually raised Hannover Re's financial strength rating one notch to AA-.
Fitch said the upgrade "reflects Hannover Re's strengthened financial profile, including reduced financial leverage, very strong risk-adjusted capitalisation and consistent earnings generation from the core non-life reinsurance segment."
Now, no-one's going to argue with that assessment, either. But really, isn't this sending out rather mixed messages? On the one hand the rating agencies are downbeat on reinsurance prospects, on the other rather chipper when it comes to individual ratings.
I'm not sure I buy this. One of my gripes with the rating agencies is they are simply too reactive, looking too much at the immediate past performance of a company and weighting their analysis accordingly. Yes, Swiss Re, Hannover Re and Scor have all had a good run but...
...if terms & conditions have widened, if prices are falling, if competition keeps on coming, if investment returns are low... I'm not sure I'd want to be positive about any reinsurer, including the big beasts.
Marcus Alcock,
Editor, InsuranceERM