S&P: Neg Outlk on Austria's Nonlife Insurance Market.

Business Editors

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

July 25, 2001-- Continued weak earnings in the Austrian nonlife insurance sector has led Standard & Poor's to establish a negative outlook for that market, indicating that the financial strength ratings of Austrian

"The Austrian insurance market is saturated, with four dominant companies holding about 65% of market share. Meanwhile, a lack of consolidation has left the lower end of the market very fragmented. Consequently, competition has driven rates down," said Ashley Gill, an associate in Standard & Poor's Financial Services Group.

Although Austria's life insurance sector lends a positive feature to the market it is unlikely to stabilize it. "Most Austrian insurers are composites and with moderate premium rate increases year-on-year, the life market has helped support the nonlife results. However, the fluidity of capital between the businesses is not sufficient to maintain insurers' overall ratings in the long-term and the outlook remains negative," Mr. Gill explained.

To compound the situation, Austria's image as a stepping-stone to enter central and eastern European markets has yet to pay off. The markets there have yet to mature and those insurers that have invested in the region have seen few tangible returns so far.

"Many Austrian companies perceive going east as a way out of the saturation of their home market, but it is a long-term strategy and those companies that have risked entering the volatile emerging markets have only had moderate success at best," Mr. Gill said, noting, however, that none has yet been forced to withdraw.

Increased earnings for Austrian insurers from central and eastern Europe remains a long way off. "With little opportunity for growth, few insurers expect the Austrian insurance market to become profitable in the short term, with one leading company describing the market as 'catastrophic', while reporting a 50% reduction in its earnings last year," Mr. Gill said.

Any near-term rate improvements are most likely to start in the motor sector, which is suffering from extreme competition and a high claims ratio. As yet, however, there is little sign of this happening. "With 2000 seeing increased claims across the board from, for example, hail storms and the ski-train fire at Austria's Kaprun resort, to improve earning insurers need to start looking less at maintaining their market share and more at improving their premium rates," commented Mr. Gill, Standard & Poor's said.---CreditWire

Copyright 2001, Standard & Poor's Ratings Services