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Announcement:

Moody's: European Credit Insurers' profits to remain constrained; Solvency II presents challenges

Global Credit Research - 07 Mar 2011

Paris, March 07, 2011 -- The challenging economic environment and relaxed underwriting discipline will constrain credit insurers' profitability in 2011, says Moody's Investors Service in a new Special Comment on European Credit Insurance. Credit insurers also have to prepare for Solvency II, which is expected to drive an increased focus on capital management and an increased demand for reinsurance.

Despite a recovery in loss ratios in 2010, the earnings potential of credit insurers has been impacted by the financial crisis. Both sluggish economic growth and the potential for increased levels of self-insurance in reaction to the tightening of underwriting implemented during the crisis will serve to constrain credit insurers' revenue going forward.

"The recovery in loss ratios reported in 2010 is unsustainable, as insurers have started to relax their underwriting discipline in order to stimulate demand and mitigate pressures on revenue," notes Benjamin Serra, a Moody's Assistant Vice President-Analyst and author of the report. "Moreover, the fragile and uneven economic outlook also exposes credit insurers to large claims and potential local crises."

Moreover, Moody's notes that in the short term, low financial and reinsurance results will also constrain credit insurers' profitability. Reserves development and costs management will be important drivers of future profitability, and these factors may vary amongst industry participants.

Moody's also notes the challenges presented by Solvency II. "Although legislation is not yet finalised, QIS 5 specifications suggest that regulatory capital requirements for credit insurers are likely to rise ," notes Mr Serra. "This is a challenge for the industry, which itself has just recovered from the crisis and is expected to drive an increased focus on capital management in the coming years."

Moody's report, entitled "European Credit Insurance: A Cycle Is Ending, The Sector Has To Adapt To A New Era", is available on www.moodys.com

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Paris
Benjamin Serra
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's: European Credit Insurers' profits to remain constrained; Solvency II presents challenges
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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