Western European re/insurers enjoy upgrades despite challenges: AM Best

Western European re/insurers face limited growth prospects and a continued backdrop of low investment returns, yet in the last 12 months, AM Best-rated entities have demonstrated stable credit ratings and upgrades have outnumbered downgrades.

That is according to a new Best’s Special Report, titled, ‘Western European (Re)insurers Enjoy Stability but Diverse Pressures Persist,’ which states the Western European market is characterised by challenges in meeting shareholders’ expectations, an abundance of reinsurance capacity and limited growth opportunities. However, regulation is less of a pressing concern for re/insurers with Solvency II compliance in force for a full two years, while the economic outlook for the Eurozone is gradually improving.

Greg Carter, managing director, analytics, said: “In 2017, the vast majority – 82 percent – 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.”

Across Western Europe, there were few downgrades, accounting for just 2 percent of rating actions in 2017, while upgrades equated to 8 percent of actions. Reasons for downgrades include changes in ownership and weakened technical performance, with a few companies underperforming longer-term expectations. Generally, the majority of AM Best’s outlooks on Western European re/insurers are stable (89 percent).

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. Improved consumer and business confidence should translate into higher insured values and opportunities for insurers. However, while AM Best expects that marginal rises in insured values and trade volumes will present some opportunities for those companies, dramatic growth is not anticipated.

Yvette Essen, director, research and communications, and report author, added: “AM Best notes 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.”

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