Last week it increased the rating of Allianz Ireland, in part because of the monopolistic characteristics of the Irish market.
The ratings agency is bullish about the strength of the industry in Ireland, despite the slump in equity markets and a downward trend in solvency ratios among insurers. The rerating occurred a few days before the Irish Insurance Federation announced that insurers made a profit of €183m last year from motor insurance alone.
“The business position is expected to remain good, as the small size of the Irish market limits competition from overseas or new entrants,” said Paul Oates, an analyst with Standard & Poor’s.
Allianz, he said, was second only to Aviva (Hibernian) in the Irish market. The ratings upgrade is based on confidence that the company will achieve its forecasts for 2004. These include a return on equity of 15% this year.
“We believe that those projections are realistic and solvency will be in line with the ratings we are now giving them,” he said. Oates explained that the revised rating of BBB indicated stability. Previously, the company had a BB rating, but that was before Standard & Poor’s analysts had met the company.
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“It was not a top-notch rating and our definition of a BB rating is that the company has marginal financial security characteristics. Positive attributes exist but adverse business conditions could lead to an insufficient ability to meet financial commitments,” Oates said.
Standard & Poor’s emphasised that the rating treats the Irish group as a standalone company, ignoring the fact that it has a major international parent that might be expected to help in the event of difficulties.
The rating also reflects the fact that the credit agency has met the management “and we got a lot more comfortable with the financial characteristics, such as their reserves. We have also been able to look at the corporate strategy”.
“The ratings on Allianz Ireland reflect the company’s good business position in the domestic Irish and Northern Irish markets, good level of reserves, and conservative investment strategy. These positive factors are offset by the company’s marginal earnings (affected in recent years by equity exposures) and a marginal capital position,” the rating says.
Whether other insurers in the Irish market can look forward to similar revisions is not known but last week’s results from the Irish Insurance Federation will do nothing to change the perception that Irish consumers are paying over the odds for cover.
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Long-awaited figures released on Friday by the federation show that Irish drivers spent €1.9 billion on motor insurance last year. Defending the €183m profit on car cover — the first since 1998 — the federation said it was good news for industry and policyholders, reflecting improved road safety and some moderation in compensation awards during the past year.
The federation denied that its members’ profits were excessive, although it admitted premiums had increased by about 40% since 1998.
In a further indication that the industry is in recovery, Life Strategies, an insurance consultancy, claimed on Friday that the financial position of the Irish life insurance sector was still quite healthy “with aggregate solvency cover of more than twice that required”.