Europe’s reinsurers may never regain that treasured AAA credit rating, says AM Best. The US ratings agency says while the “absolute levels” of the European reinsurers’ financial strength ratings remain healthy, an overall return to the higher ratings of recent years is unlikely.

A report by AM Best Europe MD Stuart Shiperlee says capital has partially recovered due to both equity raising and some recovery in the capital markets, but “the extremely higher levels of capital adequacy seen in some cases historically are unlikely to be a management goal going forward”.

The risk of further adverse development on US exposures remains, which could lead again to a strong 2004 accident year result being significantly pulled back by these prior year losses.

Mr Shiperlee told a London conference the potential for a more litigious environment in Europe driving greater liability losses in the future “cannot be ignored”. Asbestos-related disease development in Europe is probably some 20 years behind the US, with mesothelioma deaths slowly increasing but not expected to peak until around 2020.

“While the current year results appear very good, the absolute levels of underwriting profitability are not as strong as might be hoped for at this stage in the cycle,” he said. “Thus, unless the downside of the cycle proves much shallower than in recent times, or volumes are greatly reduced, a meaningful level of aggregate ‘through the cycle’ underwriting profitability may well prove unachievable.”