Aon Benfield today launches its annual Evolving Criteria report, which reviews the latest developments in rating agency protocol and impact for the insurance industry in the Europe, Middle East and Africa region.
The report highlights key changes in the rating agency world including the Eurozone sovereign ratings landscape, the Standard and Poor’s new insurers rating methodology and the impact of Solvency II.
As the Eurozone crisis continues in 2013, the report notes that Fitch, Moody’s and S&P downgraded a number of sovereign ratings with many remaining on negative outlook. While insurers’ financial strength ratings remain strained, the interconnectivity between the insurance industry and macroeconomic factors is more pronounced than ever before.
The crisis clearly demonstrates the need for a more advanced approach to risk and capital management – influenced by external stakeholders such as regulators and rating agencies raising their bar of expectation.
Ankit Desai, Head of EMEA Rating Agency Advisory, said: “Signs of a Eurozone recovery may be fragile and the low interest rate environment will likely continue in the short-to-medium term placing stresses on insurers’ financials. Opportunities are available to address capital stresses to insurers’ balance sheets through reinsurance and alternative risk transfer solutions in the marketplace.”
Apart from reacting to sovereign credit ratings, the rating agencies continue to refine their methodologies for insurers. S&P’s new methodology, released in May 2013, has made the rating process more transparent and the application more consistent globally. S&P also released an updated methodology to evaluate management strategic vision and execution, risk and financial management, and overall effectiveness of the management team to further highlight the importance of a company’s decision making. This has required rated companies to disclose more non-public and granular data than ever before.
Ankit continued: “The new criteria have only impacted a few companies globally so far but each insurer is affected differently. In response, Aon Benfield has developed a proprietary rating model that incorporates the interplay of the various factors and their impact in determining an insurer’s rating. The model is being used to help clients better understand their key rating drivers under the new methodology.”
The report also explains that, when implemented, Solvency II will significantly increase the prominence of regulatory capital but, ultimately, companies that wish to maintain a strong rating and compete in the global marketplace will need to keep focus on ratings and the underlying capital considerations, beyond those of Solvency II.
Download the report here: http://bit.ly/1cMudbg
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