Global insurers are generating solid growth despite dealing with sluggish economies, historically low interest rates and new regulatory restrictions, Standard & Poor’s concluded in a new report.
The finding illustrates “the forward development on capital and earnings around the world in light of uneven economic conditions,” Patricia Kwan, director S&P Insurance Ratings, told Carrier Management via email.
S&P said in its report that it expects 13 percent to 20 percent earnings growth in developing insurance markets. Broken down by region, the Asia-Pacific region should enjoy a 13 percent year-over-year earnings hike. Latin American growth should hit 18 percent; and Central and Eastern Europe, Middle East and Africa are predicted to enjoy a 20 percent earnings expansion.
North America and Western Europe will also see earnings growth, S&P predicts, but it should be much softer, at around 5 percent in both regions.
Insurance industry growth won’t be easy, however, as carriers overcoming a number of obstacles to hit those targets, S&P said. Among the largest obstacles: “the widely varying prospects for economic growth from region to region.”
The S&P report noted that “extraordinarily low interest rates” – some even negative (particularly in the eurozone) will also offer a significant challenge.
Other factors insurers in many regions are working to overcome: tighter capital standards, weak pricing due to excess capital, and even stricter regulatory controls on product design and distribution in some markets.
S&P said it sees Western Europe life insurance and global property/casualty reinsurance businesses as particularly affected by these factors, and added they’ll see negative rating actions outnumbering positive ones.
In North America, S.&P said that carriers are starting out 2015 strong, with “record-high capital attributed to favorable equity market returns, relatively light weather-related and medical losses, and a stable level of investment income as low interest rates are offset by growing investment assets.”
But S&P warned that reinsurers, mainly those domiciled in Bermuda, are still facing troubles with excess capital in the weak pricing cycle. The ratings entity said that the sector will still see positive earning, but those numbers will decline “by as much as 16 percent” for many of S&P’s rated insurers since it revised its outlook to negative at the beginning of 2014.
North American primary p/c insurers generally ended 2014 with respectable earnings and should see modest underwriting profits with a combined ratio below 100. While their ratings will largely stay stable, carriers in this sectors will deal with flat underwriting margins and investment income and shrinking reserve releases. Also ahead for p/c companies: pricing pressure on commercial property and other lines of business, and more uncertainty over the frequency and severity of natural catastrophic losses, S&P said.