S&P Revises Otlk for Austrian Insurance Mkt to Stable.

Business Editors

LONDON--(BUSINESS WIRE)--Standard & Poor's

Jan. 21, 2003--Standard & Poor's Ratings Services said today that it has revised its outlook for rated Austrian insurers to stable from negative, indicating that insurer financial strength ratings are more likely

"Although negative rating activity has been evident in the Austrian market over the past two years due to continued weak earnings, the market's profitability looks to have stabilized and the rating environment seems to be slowly improving," said Standard & Poor's credit analyst Ashley Gill.

During 2001, there were six downgrades in the Austrian insurance market, representing one-third of Standard & Poor's ratings coverage in the region. Rating actions slowed in 2002, with only one downgrade, which was based on the stand-alone characteristics of market participants and unrelated to any group impact. Nevertheless, although ratings in the market appear to be reaching a more sustainable level, the uncertain economic environment remains a threat, with any further investment market shocks likely to pressure ratings.

Consolidation in 2001 and 2002 will contribute to the stabilization of the market, following mergers between Volksfursorge-Jupiter and Wustenrot in 2001, and, in 2002, between Montanversicherung AG and Wiener Stadtische, and Winterthur and Zurich Kosmos. Announced at the end of last year, the sale of AXA Versicherung AG (Austria) to UNIQA Versicherungen AG will be a further boon to the stabilization of the market. Nevertheless, although consolidation will assist the recovery of the market and a return to profitability over the long term, improvements in companies' operating performance will be slow.

Following premium growth above the rate of inflation in 2001, the non-life sector saw a significant seven-percentage-point improvement in its combined ratio--the main indicator of an insurer's underwriting profitability--to 111.5%. Nevertheless, there remains some way to go before the sector reaches the 100% break-even point.

"Despite an improved technical result in the non-life sector in 2001, there is unlikely to be any significant improvement in profitability for 2002. The summer 2001 floods in Northern Austria, losses from hail storms, and difficult operating conditions in the industrial sector are likely to limit the level of profitability for the sector," said Mr. Gill.

Premium growth in the life sector in 2001, although modest at 8.2%, also remained above inflation. Most notably, strong sales of unit-linked products belied poor investor confidence in other European markets, up 17.6% on 2000.

The life sector is unlikely to experience exceptional results in 2002, however, with earnings expected to be similar to those in 2001, largely due to the poor investment environment. "Growth in the Austrian life market will depend on insurers' ability to maintain confidence among policyholders. Although domestic equity markets remain stable compared with those of other European countries, Austria's life insurers also have exposure to other European markets and there is already talk that life policy bonuses will be cut," said Mr. Gill.

ANALYST E-MAIL ADDRESSES

ashley_gill@standardandpoors.com

wolfgang_rief@standardandpoors.com

InsuranceInteractive_Europe@standardandpoors.com

Copyright 2003, Standard & Poor's Ratings Services