TEXT-S&P report says Global multiline insurers are still sound

Mon Jan 14, 2013 6:38am EST

Jan 14 - Standard & Poor's Ratings Services believes the credit quality of global multiline insurers (GMIs) it rates is still generally sound, according to an industry report card "Global Multiline Insurers' Credit Quality Remains Strong, But Many Hurdles Lie Ahead," published today on RatingsDirect.

This is despite a downward trend we have observed over the past four years amid ongoing economic and industry challenges in Europe and the U.S., high natural catastrophe claims, and volatile equity markets. According to our criteria, the GMIs still show sound credit characteristics that compare favorably with those of large corporate or financial institutions.

Our ratings in the sector therefore remain in the lower 'AA' to upper 'A' range. Several carry negative outlooks, however, as we anticipate mounting pressure on the GMIs over 2013 and 2014. In particular, increasing credit risk in weakened economies, low interest rates, and difficult operating conditions have been eroding insurers' profits, threatening the adequacy of their capital bases. In our view, the preservation of capital has therefore become the top priority for many GMIs.

We think the GMIs' global geographic and product diversification affords them an advantage over less diversified insurers and positions them well to implement their strategic plans. However, we expect the challenges of low interest rates, increasing credit risk in investment portfolios, persisting equity market volatility, and uncertainties relating to the European sovereign debt crisis to remain the main threats to our credit ratings on GMIs.

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