A.M. Best's Review/Preview Available on Web: Insurance Industry Rating Outlook Is Mixed

Business Wire, Jan 12, 2000

Business & Insurance Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 12, 2000

Financial-service reform, global competition and the growing influence of the Internet are driving insurance company rating trends, A.M. Best Co. says in its annual Review/Preview reports on the life/health and property/casualty insurance industries.

The reports--which can be read on the Internet at www.bestreview.com/revpreview--examine the insurance industry by segments and product lines, reviewing the events that affected insurers in 1999 and making specific projections for 2000 and beyond. They paint a mixed picture of the overall prospects for insurance company ratings.

Life insurers are most likely to be affected by financial-service modernization legislation approved in the final weeks of 1999, A.M. Best says. These companies already are hampered by slow growth and low returns. The increased competition arising from the removal of regulatory protections will test the abilities of companies in this segment to differentiate themselves through value-added products, services, and distribution. Consumers ultimately will be the judge.

Commercial-lines property/casualty insurers will continue to feel the greatest impact of globalization, the rating agency says. Intense competition stemming from excess capacity in the global market, along with the evolution of the alternative markets as a conduit for risk transfer, is expected to keep premium rates low and compress margins for companies in this business.

Electronic commerce and new Internet-based competitors and information providers are expected to have the greatest influence on personal-lines companies. Though most in this segment will remain reliant on captive and independent agents as their primary distribution source, A.M. Best believes personal lines products will become even more commoditized as the Internet and direct sales methods provide increased transparency of price and distribution costs.

The rating agency notes several bright spots associated with the new competitive landscape. However, the insurers best positioned to take advantages of these opportunities will be those that maintain the requisite skills to compete effectively with a broader array of competitors and can manage an increasingly complex set of risks. In general, A.M. Best expects insurers in the retirement savings and asset accumulation fields to continue to benefit from ongoing demographic trends and the increasing shift of responsibility to individuals to provide for their own retirement security. For the same reason, supplemental health insurers, particularly long-term care providers, should also find opportunities in this changing environment.

A.M. Best also believes certain small companies will continue to find opportunities in product and/or distribution niches. In addition, some negative pressures on ratings are likely to be offset by consolidation as stronger insurers acquire either their weaker competitors or those who are less well positioned from a strategic standpoint. Rating upgrades also could result from acquisitions by strong and diversified domestic or multinational financial service firms.

The outlook for reinsurers is generally stable. However, A.M. Best believes that, in the longer-term, this segment could benefit from financial-service reform, the global trend toward the privatization of pension and health-care systems and the growing need for risk and capital management solutions for multinational clients.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.