Patricia Kwan, a Director at S&P Insurance Ratings, joins to discuss the hurdles to revenue and profitability growth insurers face, outlined in a recent report by S&P entitled “Pursuing Global Insurance Profitability Amid Tempered Economic Growth.”

According to Ms. Kwan, the most common headwinds impacting insurers’ quest for profitability are “interest rates, excess supply of capital, and tighter capital standards, coupled with uneven economic growth.”  According to Ms. Kwan, Life insurers in Western Europe face a particular challenges from low interest rates, and global reinsurers cannot raise prices due to an oversupply of capital.

Ms. Kwan says globally “we see earnings averaging between 6-7% for 2015-16, with APAC, Latin America and Central & Eastern Europe, Middle East- Africa leading.”  For North America and Western Europe, insurers’ earnings growth rate will average about 5% year over year thru 2016.

Regionally, Ms. Kwan sees “China, both nonlife and life, Singapore offshore, Mexico P&C, Colombia Life, and US health sectors” are positioned for growth.  There are also a number of markets, which are under-penetrated that also have upside potential, including “China, Brazil, Mexico, Colombia, Thailand, and the Arab states bordering the Gulf region.”

Interest-rate sensitive insurers in Western Europe and global reinsurers are facing the biggest challenges said Ms. Kwan. With interest rates in the Eurozone staying low for a longer period of time, “insurers searching for yield may lead to assuming additional credit, market, or liquidity risk. Insurers lacking capital to absorb these additional risks are more likely to see erosion of credit quality.”  Global reinsurers who compete on price, or by relaxing their underwriting discipline, are also at risk.

For more information on S&P’s report visit the S&P website.

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