Improved governance buffers effects of Hurricane Katrina

Improved corporate governance and transparency in the reinsurance sector is
expected to help the industry cope with the aftermath of Hurricane Katrina,
according to credit rating agency Standard & Poor’s.

Initial estimates indicate that the global reinsurance market is facing
losses of £27.6bn, but, despite this, Standard & Poor’s believes that a
disciplined approach to reserving and governance over the past three years has
prepared reinsurers for the liabilities they face after the Gulf of Mexico
hurricanes.

The credit rating agency said that, despite the scale of the disaster and
reinsurance losses, the next cyclical low in the sector would be ‘less severe’
than previous downturns, because of a more responsible reserving strategy. It
added that technical improvements to pricing models had helped to reduce the
historical ‘boom and bust’ swings.

‘The increased use of sophisticated pricing tools will ensure that financial
targets are reflected in pricing decisions,’ Standard & Poor’s said in the
report Global Reinsurance: Outlook Stable Despite Market Softening and Hurricane
Katrina.

‘Transparency has moved up the agenda, with regulators, shareholders and
reinsurance buyers demanding improved corporate governance and greater
professionalism.’

Peter Allen, financial markets partner at Grant Thornton, said the
reinsurance cycle was stabilising due to a combination of tougher governance and
technical improve-ments in pricing.

‘Historically, there has been igno-rance over what losses reinsurers,
particularly those underwriting property casualty, were making and, as a result,
people continued underwriting when they shouldn’t have,’ said Allen.

‘Better pricing and governance have helped the situation. There have been
major technical improvements to capital modelling and the use of this new data
has been encouraged by regulators through governance,’ he added.

Standard & Poor’s, however, warned the industry was entering a ‘critical
phase’, which would require senior management to maintain discipline to sustain
the agency’s positive outlook on the market.

COMPANY REPORTS

FTSE ALL-SHARE
Independent News and Media, which has reported an
80.6% rise in pre-tax profits to 140.7m euros (£95.2m) for the half-year ended
30 June 2005, has raised concerns about the treatment of deferred tax under
IFRS. The media group said it had to make an ‘illogical adjustment’ under IFRS
to its deferred tax liabilities, becausethe book value of certain assets
exceeded their tax bases. It said: ‘The group does not currently have a
constructive or legal obligation for any tax liability associatedwith these
assets and, therefore, the required deferred tax liability in this case is
inconsistent withthe accounting treatment forother provisions.’

AIM
Visual Defence, the intellectual property communications
provider to the defence market, has warned there will be a shortfall in its
revenue and profit performance for 2005, because of a shift in the timing of its
projects. The group said key clientele were taking longer to confirm projects,
which would affect revenues.