GLOBAL LIFE RE IICRA REPORT
Global Life Reinsurance Sector Carries A Low Industry And Country Risk Assessment
By Johannes Bender, Ferris Joanis and Dennis Sugrue
The country and industry risk assessments for the sector are based on scores from a variety of related subfactors including financial system risk, payment culture, profitability and barriers to entry.
Rationale
Standard & Poor’s Ratings Services assesses industry and country risk in the global life reinsurance sector as low. Our assessment reflects our view of the risks that life reinsurers operating in the global marketplace typically face. We consider both industry and country risk for this sector to be low. Primary life insurance markets that have low industry and country risk assessments include Austria, Denmark, France, Hong Kong, New Zealand, Norway, Singapore, Sweden, Switzerland, the U.K., and the U.S.
Country Risk: Low
We derive our low country risk assessment for the global life reinsurance sector from an approximation of the weighted-average scores of each of the five country-related subfactors—economic, political risk,
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financial system risk, payment culture, and rule of law—of the major countries where life reinsurers operate. Global reinsurers typically write business in multiple countries around the world, resulting in a high level of geographic diversification. More importantly, the domicile of the reinsurer has relatively little impact on the aggregate industry and country risks it faces. Despite its insulation from individual country risks, the global reinsurance sector can still be influenced by wider macroeconomic trends. We anticipate that interest rates will remain low, and continue to depress the sector’s investment returns, and thus its returns on equity (ROEs). However, our forecasts for divergent growth trends between developed and emerging economies could open up opportunities for life reinsurers to increase their market penetration in the faster-growing emerging markets.
Industry Risk: Low
We base our assessment of industry risk for the global life reinsurance sector on our evaluation of five industry-related subfactors: profitability (measured by ROE); product risk; barriers to entry; market growth prospects; and institutional framework.
Return on equity (positive)
We regard the historical and prospective profitability of the global life reinsurance market as positive. We anticipate that the industry’s profitability will remain favorable, and we estimate an industrywide average ROE of more than 10% for 2014–2016. This is backed by our assumption that the operating return on embedded value will be about 8%–12%, and that the new business margin will be about 3.5%–4.0%, based on the present value of new business premiums in 2014–2016.
Global Reinsurance Highlights 2014
SHUTTERSTOCK / SAM CHADWICK
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