S&P: Reinsurance Pricing Cycle at ‘Critical Point’

Standard & Poor’s Ratings Services latest report on the global reinsurance industry – “2008 Reinsurance Renewals: Underwriting Discipline Takes Center Stage As Price Adequacy Declines Further-” concludes: The pricing cycle is at a critical point.”

S&P said “that while the pricing for most lines of business, across most geographies, is still adequate for the risks being covered, many segments appear to have reached the point at which further price reductions would signal the transition from a softening market into a soft market.”

S&P credit analyst Peter Grant stressed that S&P “does not consider improved underwriting discipline to be an optional extra for reinsurers,” i.e. it is a “necessity if the sector intends to protect its strong overall ratings.”

S&P further indicated that it “retains its cautious optimism that the depth and duration of the current downward phase of the pricing cycle will be tempered, relative to past downturns, by the industry’s enhanced risk management credentials. Nevertheless, a key part of its surveillance for all rated reinsurers over the next 12 months will be a critical evaluation of the appropriateness of each entity’s response to the softening pricing environment.”

Grant noted that if “further deterioration in pricing occurs during the second half of 2008 and into 2009, we will be assigning negative outlooks to those companies whose response we consider to be either inadequate or inappropriate.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at www.standardandpoors.com;