U.S. Mortage Insurance Brightens an Uneven 2016 Global Market: S&P

Mortgage insurers in the U.S. are set for a robust 2016, a bright spot in an otherwise uneven global market, where success will depend on the region of the world in which carriers are doing business, Standard & Poor’s Global Ratings concluded in a new report.

“With U.S. recession anxiety abating and economic stability continuing to reflect job creation, rising hourly wages, improved consumer confidence and healthy household credit conditions, we expect the U.S. mortgage insurance sector is set for another strong year,” the S&P report asserted.

Outside of the U.S. mortgage insurance market, however, insurer success will depending on where in the world they operate, S&P said.

“Overall we see strong capital from stable underwriting earnings and strong asset quality, … however, the global landscape is hardly uniform” the ratings entity wrote. “Mature markets, particularly within the property/casualty industry, show signs of stability, whereas insurers or investors in less-mature ones have to be more cautious.”

Still, those less-mature markets continue to have allure, S&P said, because they show “greater earnings prospects” than the others.

In the mature market space, S&P said that it expects continued struggles, in part, because of concerns over investment income. It is rather bullish about U.S. mortgage insurers, however, noting they are “continuing a dramatic comeback from the 2008 financial crisis.”

A global roundup of S&P expectations:

• With China facing economic risk over the net two years, S&P predicts Asia-Pacific insurers will see more volatile capital and investment earnings, ranging from China to Taiwan, Hong Kong and Australia. But Japan’s life and non-life insurers will remain stable, despite a decline in long-term interest rates.

• High interest rates will help support the results of insurers in Brazil and Mexico, despite tougher conditions. Those challenges include a slower economic recovery and changing regulation in Mexico, and economic contraction/falling credit expansion in Brazil, both of which S&P says will contribute to slower premium growth and possibly smaller profits.

• Western Europe is dealing with low interest rates, though S&P predicts stability for the property/casualty sector, based on steady operating earnings and limited asset risks. For reinsurance, however, S&P sees weakened pricing, terms and conditions continuing due to a continued imbalance of supply and demand.

• S&P said regulators in South Africa, Nigeria, Kenya, Saudi Arabia and the UAE have been taking steps to beef up their oversight, governance or capital standards demands for insurance, adding expense burdens for insurers in those markets. Insurers in Kenya and Nigeria in particular face challenges due to the global economic slowdown and the collapse in oil prices.

• In Russia, the insurance market, which is dominated by P&C companies, will track Russia’s forecasted 1.3 GDP decline, S&P said.

The full S&P report is titled, “Insurers Worldwide Confront An Interlocking Puzzle of Factors That Make Growth Tough to Find.”

Source: Standard & Poor’s