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Rating Action:

NEGATIVE CREDIT OUTLOOK FOR UK P&C INSURERS REFLECTS POTENTIAL EFFECTS OF COMPETITIVE ENVIRONMENT

28 Jul 1999
NEGATIVE CREDIT OUTLOOK FOR UK P&C INSURERS REFLECTS POTENTIAL EFFECTS OF COMPETITIVE ENVIRONMENT New York, July 28, 1999 -- "The UK P&C insurance industry, which comprises personal, commercial and diversified lines writers, is suffering some of the severest underwriting conditions ever seen in the market as a result of overcapacity, rising investment markets and overly aggressive pricing" says Moody's in its annual industry outlook published today.
Despite the core financial strengths of many of its participants, the sector as a whole has a difficult time ahead. "Underwriting practices are likely to accelerate the consolidation process which has already been underway for several years but has so far led to no meaningful benefits for margins."
According to Rafael Villarreal, author of the report, most participants focus on market share, not on producing or maintaining underwriting profit. This is one of the industry's defining features and one of its main weaknesses. "For some years, the main classes of business have traded at unsustainable rates and produced poor underwriting results, which have on the whole been offset by numerous practices."
Mergers, takeovers and companies ceasing operations may be some of the continuing responses to this environment. Restructuring, however, has a downside because of the limited potential for further economies of scale - since the majority of costs are variable, and fixed costs have in many cases been pared down, it is difficult to see where significant savings can be generated. A lower interest rate environment may over time instill greater underwriting discipline but available capacity and present trading behavior almost ensure that operating results will not improve in the near future.
The UK P&C Insurance Industry Outlook is supported by three other reports recently published by Moody's entitled Loss Reserves of UK P&C Insurers, Profitability of UK P&C Insurers: Trading on Thin Ice, and Cash Flow Underwriting: The Art of Losing Money for Profit. The supplementary reports cover three key aspects of this important industry, whereas the industry outlook examines the industry's risk profile, the increasing tensions that exist between distribution channels and underwriters, and some of the changes in the legal environment that could lead to a more litigious environment in the UK.
While acknowledging that capitalisation levels are generally good, that financial flexibility exists in the industry and that investment portfolios are of generally good quality, poor profitability continues to be a recurrent problem, and shows no sign of abating.


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

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


CGU plc [2] --- Aa2 P-1

Commercial Union Assurance Company plc Aa2

Eagle Star Insurance Company Limited A1

General Accident Fire & Life Assurance Corp. Plc Aa2

General Re Europe Ltd Aaa

Guardian Insurance Limited A1

Guardian Royal Exchange Assurance plc A1

Guardian Royal Exchange plc A1

Legal & General Insurance Limited Aa3

Norwich Union Insurance Limited A1

Norwich Union plc P-1

Royal & Sun Alliance Insurance plc Aa3 P-1

Royal & Sun Alliance Insurance Group plc A2 [3]

Royal Insurance Holdings plc A2 [3]

SCOR UK Company Limited A1

St. Paul Reinsurance Company Limited Aa2 [2]

Sun Alliance & London Insurance plc Aa3

Terra Nova Insurance (UK) Holdings plc Baa1


[1] IFSR stands for Insurance Financial Strength Rating [2] Supported [3] Subordinated




NOTE TO JOURNALISTS ONLY: For a copy of this Moody's report, please contact Donna Gee in New York (212) 553-0376, David Frohriep in London (171) 772-5454, Juan Pablo Soriano in Madrid (341) 310 1454, Anita Poppi in Sydney (612) 9270 8100, Jean-Yves Caminade in Paris (331) 53 30 10 20, Juergen Berblinger in Frankfurt (4969) 242 840, Velvet Yoshinami in Tokyo (813) 3593 0734, Hilary Parkes in Toronto (416) 214-1635, Lorraine Yee in Hong Kong (852) 2916 1112 or Christiana Aguiar in SÆo Paulo (5511) 3043-7186.
No Related Data.
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