Western European re/insurers enjoy stable ratings and an operating environment that’s showing signs of picking up as economic activity increases across the Eurozone, but players are still walking the tightrope of a saturated and highly competitive, pressurised market.
Despite limited growth prospects and a continued backdrop of low investment returns, A.M. Best noted in a Special Report on the sector that upgrades have outnumbered downgrades in the last 12 months, and ratings have been largely stable.
Greg Carter, managing director, analytics, said; “in 2017, the vast majority – 82% – of rating actions were affirmations. Overall, there were more upgrades than downgrades across the portfolio as a whole, with strong operating performance the key driver.
“Factors influencing upgrades have included companies’ stable capital positions, resilience to economic strains, international expansion plans and integration into a larger group.”
Downgrades across Western Europe accounted for just 2% of rating actions in 2017; upgrades accounted for 8% of actions, and the vast majority – 89% – of ratings were stable.
Some firms were downgraded due to changes in ownership and weakened technical performance with a few companies underperforming longer-term expectations.
However, the Western European market remains characterised by challenges in meeting shareholders’ expectations, an abundance of reinsurance capacity and limited growth opportunities.
Yvette Essen, director, research and communications, and report author, commented that “rated entities are strongly capitalised and operating in a relatively stable economic environment, despite some recent currency and stock market volatility.
“Companies have been well prepared for that volatility, and the challenges that most face are within the capability of their management.”
Some positives for European re/insurers include regulation being less of a concern with Solvency II compliance having now been in force for a full two years.
In addition, the report states that there are signs that economic activity is starting to increase across the Eurozone, with modest rises in inflation rates.
This is expected to lead to rises in interest rates eventually and as a result, improved consumer and business confidence could create higher insured values and opportunities for insurers.
However, while the rating agency expects marginal rises in insured values and trade volumes to present some opportunities for European reinsurers, dramatic growth is not anticipated, and firms will have to continue to play within the boundaries of a well-developed and saturated market.
