The global insurance industry is facing uneven economic conditions in many parts of the world, which will challenge earnings growth in 2015, according to a new report from Standard & Poor’s Ratings Services (SPRS). The report, “Pursuing Global Insurance Profitability Amid Tempered Economic Growth,” released on March 30, finds that widely varying prospects for economic growth from region to region and extraordinarily low interest rates—which are likely to stay lower for longer, particularly in the Eurozone—will make profitability even more difficult than it has been in recent years.

Insurers in many regions will have to deal with tighter capital standards, weak pricing due to excess capital or stricter controls on product design and distribution in some markets. SPRS expects sectors exposed to these elements—especially Western Europe life insurance and global property and casualty (P&C) reinsurance—to see negative rating actions outnumbering positive ones.

Modest increases

On aggregate, SPRS projects that global insurance earnings will trend “modestly higher,” clipping at around 6% to 7% year-over-year through 2016. On a regional basis, SPRS expects relatively robust earnings 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 Western Europe are likely to show moderate to soft earnings trajectories (both at about 5%). These regional variations reflect SPRS’s view of the fast- and-slow growth opportunities that differentiate the developing and developed markets.

Many insurers operating in APAC, LatAm, and CEEMEA are experiencing double-digit premium and earnings growth, according to the report, exceeding those measures in comparison to companies operating in North America and Western Europe. The common characteristics that differentiate the high-growth insurers are that they operate in countries that are typically densely populated, with a strong or growing middle class (for example, China, Mexico, Brazil, and South Africa), and markets that are less fragmented (China, Japan, Colombia, and Korea) or where insurance penetration 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 higher ratings, but weak earnings generally weigh on ratings,” said Standard & Poor’s credit analyst Patricia Kwan.

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