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For Some Reinsurers, Returns May Not Be Enough To Cover Their Cost Of Equity Sep 11
Standard & Poors, Sep 2011
Abstract
With many global reinsurers' common shares continuing to trade at a discount to their book value, the question is: Are reinsurers producing adequate returns to cover their cost of equity capital and meet investors' expectations? Reinsurers have, in general, produced disappointing results over the past nine years, with average returns on equity (ROEs) that only equaled the companies' estimated cost of equity capital. Nonetheless, our research showed significant differences among the best and worst performers in the sectors: Some companies produced healthy excess returns during this period, while others barely managed to cover their cost of equity. The current valuations for most global reinsurers reflect, in our view, investors' relative skepticism about the reinsurance sector's future operating performance and whether...
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
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