The pace of rating agency and regulatory developments is not expected to slow in the near future, according to a report from Aon Benfield.
Over the past 12 months, A.M. Best has released criteria on capital credit of surplus notes, defined surety company stress tests and introduced a national rating scale process.
Additionally, A.M. Best is expected to release an update on its new stochastic capital model by the end of 2014.
S&P updates include defining how a company may be rated above its sovereign, and expansion of the S&P Insurance Industry Country Risk Assessment scores.
Moody's published a standardised approach to stress testing, and Fitch reintroduced its enhanced stochastic capital model, Prism, for use on EMEA and non-life US insurers.
According to Aon, regulators are also strengthening capital requirements and the emphasis is on more than risk-based capital models. Specifically, own risk solvency assessment is becoming a common framework in the regulatory process.
Strong enterprise risk management was pinpointed as the anchor for companies to address regulatory developments and manage rating agency expectations.
Patrick Matthews, head of the Global Rating Agency Advisory, said: "The strong financial results of insurance and reinsurance companies globally has not allayed the concerns of the rating agencies, which believe the record levels of capital in the industry coupled with the low interest rate environment, could make it difficult for firms to achieve sustainable, robust results.”
“In addition, exposure to rating agency and regulatory changes is often an underestimated 'event' risk for many companies. Understanding and managing evolving criteria plays an integral component of insurers' success going forward."
Aon’s report discusses that rating agencies' view of the reinsurance sector has changed dramatically over the past year, with S&P, Moody's and, most recently, A.M. Best all revising their respective outlooks from 'stable' to 'negative'.
Meanwhile, insurer and reinsurer underwriting results were shown to have improved, with the median combined ratio expected to reach 94.1 percent by year-end based upon equity analyst estimates.
Multiple years of rate increases, especially on property and workers' compensation business, combined with relatively low catastrophe losses so far in 2014 have contributed to strong underwriting results.
The percentage of companies that reported a combined ratio above 100 has significantly decreased from 60 percent in 2011 to only 14 percent in 2013, with 2014 expected to see a slight uptick to 18 percent.
