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Rating Action:

MOODY'S MAINTAINS NEGATIVE OUTLOOK ON UK PROPERTY & CASUALTY INSURANCE INDUSTRY; POTENTIALLY STABLE IN MEDIUM TERM

16 Aug 2000
MOODY'S MAINTAINS NEGATIVE OUTLOOK ON UK PROPERTY & CASUALTY INSURANCE INDUSTRY; POTENTIALLY STABLE IN MEDIUM TERM London, August 16, 2000 -- In a new industry outlook released today on the UK Property & Casualty (P&C) Insurance Industry, Moody's maintained its negative rating outlook in the short-term, although in the medium-term the outlook becomes stable provided that market conditions continue to improve. The key driver of whether this outlook change will occur is the willingness of the market players to focus on profitability and not on market share, added the rating agency.

The report, written by Senior Analyst Simon Harris, provides a detailed analysis of the UK P&C industry, its current status, future prospects and credit sensitivities. In Moody's view, although the industry overall is in a relatively strong financial position, with high reported solvency, profitability is still poor, and is supported by unsustainable levels of investment gains. "Premium rates in many insurance classes are now showing increases, but after many years of inadequate pricing, commercially dubious underwriting and volume-chasing strategies, in Moody's view, rates will have to continue to improve for some time before real profitability returns," added Harris.

Furthermore, reforms to legal and regulatory systems (Ogden tables, Law Commission reforms, passing of Financial Services and Markets Bill) continue to rapidly affect the operating environment of UK P&C insurers, mainly negatively. Proposals to tax P&C insurers' loss reserves add to this negative credit pressure.

In terms of reported capitalisation, the UK P&C insurance industry appears strong. However, Moody's views the industry's reported solvency as somewhat unrealistic, due to its high reliance on recent stock market gains. "In addition, balance sheet restructuring and capital management are acting to effectively reduce solvency. Furthermore, Moody's believes that loss reserve adequacy may be falling, such that reported solvency is again overstated," notes Harris.

The report also notes that London market companies and Lloyd's have, along with global reinsurers and large commercial writers, just passed through one of the worst periods in recent history. Excessive capacity in reinsurance markets has depressed premiums, whilst 1999 was the second worst year for natural catastrophes on record.

More positively, for many classes premium rates are showing significant increases, although Moody's believes further sustained rises are necessary. According to the report, Moody's views positively the recent rate rises seen for Motor and Liability insurance in the UK. However in Moody's view, years of under-pricing and substantial rises in claims costs mean that continued rate rises are required to return to true profitability. Moody's outlook for the industry may therefore become stable in the medium-term if premium rates continue to improve.

In addition, consolidation continues apace in the industry, with a positive credit impact for those involved. According to Moody's, the merger of CGU and NU, along with the acquisition by AXA of Guardian in 1999, means that the top four P&C groups (CGNU, RSA, AXA and Zurich) control roughly two-thirds of UK premiums. Increased market share may bring advantages such as enhanced pricing capabilities and lower expenses, added the rating agency.


Moody's rates the following P&C insurers in the UK :


Company IFSR [1] L/T Debt S/T Debt

AXA (Cardiff) Ltd Aa3
AXA Direct Insurance Ltd Aa3
AXA General Insurance Ltd Aa3
AXA Insurance plc Aa3
CGU plc Aa2 P-1
CGU Insurance plc Aa2 [2]
CGU International Insurance plc Aa2 [2]
CNA Reinsurance Company Ltd A3
Eagle Star Insurance Co. Ltd A1
ERC Frankona Reinsurance Ltd Aaa
General Re Europe Ltd Aaa
Legal & General Insurance Ltd Aa3
Norwich Union Insurance Ltd A1 [2]
Royal & Sun Alliance Insurance plc Aa3 P-1
Royal & Sun Alliance Insurance Group plc A1 [3]
Royal Insurance Holdings plc A2 [3]
SCOR UK Company Ltd A1
St. Paul Reinsurance Company Ltd Aa2


[1] IFSR stands for Insurance Financial Strength Rating
[2] On review for possible upgrade
[3] Subordinated


* * * *
NOTE TO JOURNALISTS ONLY: For a copy of this Moody's report, please contact Daphne Hand in New York +1-212-553-0376, London Press Desk +44-20-7772-5454, David Frohriep in Paris +33-1-5330-10 62, Juan Pablo Soriano in Madrid +34-91-310-1454, Anita Poppi in Sydney (612) 9270 8100, Juergen Berblinger in Frankfurt +49-69-242-840, Hideaki Hoshina in Tokyo +813-3593-0734, Hilary Parkes in Toronto +1-416-214-1635, Lorraine Yee in Hong Kong +852-2916-1112 or Christiana Aguiar in SÆo Paulo +55-11-3043-7186
No Related Data.
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