The global insurance industry is facing uneven economicconditions in many parts of the world, which will challengeearnings growth in 2015, according to a new report from Standard& Poor’s Ratings Services (SPRS). The report, “Pursuing GlobalInsurance Profitability Amid Tempered Economic Growth,” released onMarch 30, finds that widely varying prospects for economic growthfrom region to region and extraordinarily low interest rates—whichare likely to stay lower for longer, particularly in theEurozone—will make profitability even more difficult than it hasbeen in recent years.

Insurers in many regions will have to deal with tighter capitalstandards, weak pricing due to excess capital or stricter controlson product design and distribution in some markets. SPRS expectssectors exposed to these elements—especially Western Europe lifeinsurance and global property and casualty (P&C) reinsurance—tosee negative rating actions outnumbering positive ones.

Modest increases

On aggregate, SPRS projects that global insurance earnings willtrend “modestly higher,” clipping at around 6% to 7% year-over-yearthrough 2016. On a regional basis, SPRS expects relatively robustearnings momentum from Asia-Pacific (APAC, 13% year-over-year),Latin America (LatAm, 18%), and Central & Eastern Europe,Middle East and Africa (CEEMEA, 20%). North America and WesternEurope are likely to show moderate to soft earnings trajectories(both at about 5%). These regional variations reflect SPRS’s viewof the fast- and-slow growth opportunities that differentiate thedeveloping and developed markets.

Many insurers operating in APAC, LatAm, and CEEMEA areexperiencing double-digit premium and earnings growth, according tothe report, exceeding those measures in comparison to companiesoperating in North America and Western Europe. The commoncharacteristics that differentiate the high-growth insurers arethat they operate in countries that are typically denselypopulated, with a strong or growing middle class (for example,China, Mexico, Brazil, and South Africa), and markets that are lessfragmented (China, Japan, Colombia, and Korea) or where insurancepenetration is low (Colombia, China, Thailand, Mexico, Brazil,Bahrain, Kuwait, Russia, and United Arab Emirates).

“The relationship between earnings and ratings isn’t simple:Rising earnings growth alone doesn’t necessarily lead to higherratings, but weak earnings generally weigh on ratings,” saidStandard & Poor’s credit analyst Patricia Kwan.

RatingsDirect subscribers can obtain a copy of the report on theGlobal Credit portal or the SP Capital IQsite. If you’re not a subscriber, you can purchase a copy ofthe report by calling 212-438-7280 or sending an e-mail to [email protected]. You also canfind ratings information on S&P’s public website.