S&P’s Maintains Negative Outlook for Swiss Non-Life Insurers

Despite signs of improvement in the technical performance of the Swiss non-life insurance market in 2002, Standard & Poor’s said that it is maintaining its negative outlook on the market, indicating that ratings are more likely to trend downward than remain stable.

In 2002, Standard & Poor’s lowered its ratings on four Swiss non-life
insurers, representing nearly one-quarter of rated non-life companies and groups in the region. “The 2002 downgrades were mainly due to a weakening of companies’ capital strength, constrained financial flexibility – defined as the ability to source capital relative to requirements – as a result of the current adverse investment climate, and poor earnings performance,” said Standard & Poor’s credit analyst Jorg Ritthaler.

This trend has continued in 2003, with the ratings on another four
non-life insurers being lowered.

“Ratings in the Swiss insurance market will remain pressured, despite
expectations that the average combined ratio will improve for 2002, heralding an improvement in the market’s technical performance,” said Ritthaler. “Notwithstanding these expected improvements, a lot of companies will have to take further measures to enable the market to achieve a technical break-even result in 2003.”

The need for further technical improvement is supported by the current investment market conditions, which are forcing companies to focus on underwriting profitability. It remains questionable, however, whether these improvements will be sufficient to allow companies to rebuild their battered capital bases. Moreover, capital markets are likely to remain volatile, and any further substantial downturn in investments could put additional pressure on rating conditions.

“Premium growth across the sector has been slow, at about 4 percent in 2002, reflecting the maturity of the market,” added Ritthaler. “With competition expected to remain intense – forcing companies to review their existing business models – Standard & Poor’s expects premium growth to remain in low single-digit figures in 2003, with health insurance one of the main drivers of growth.”