S&P expects solid 2007 for European carriers

LONDON—The European insurance industry should have a solid 2007, on the momentum of a 2006 performance that benefited from an absence of 2005's large losses, according to a new report by Standard and Poor's Ratings Services.

"We expect 2007 to be another good year for the sector, although the primary and reinsurance markets may be beyond their pricing peak," said the report, titled "European Insurance: 2006 in Review, 2007 In Anticipation."

In 2007, "Any decline in pricing is likely to be less steep than in previous cycles due to improved risk management, lower investment returns, and better pricing tools," it said.

S&P said that currently "79% of insurance ratings for Europe are assigned a stable outlook or developing CreditWatch listing, 16% a positive outlook or CreditWatch listing, and just 5% a negative outlook or CreditWatch status."Noting several "sizeable deals' in 2006, the agency cautioned that "Factors that might upset this stable environment include poor execution of acquisitions and investment market volatility."

On the other hand, "Further positive outlook revisions could occur if insurers are able to demonstrate that favorable earnings trends are sustainable through the cycle."

In regard to rates, S&P said it expects combined ratios below 100% for European primary non-life markets "in the foreseeable future. "Most Continental European nonlife markets appear to be holding firm. In the United Kingdom however, motor and commercial lines rates are bordering on the uneconomic."

The report warns that "The quiet 2006 U.S. hurricane season leaves unanswered crucial questions that emerged in the aftermath of Katrina, Rita and Wilma storm losses, as well as potentially damaging the pricing environment going forward."