S&P says industry risk is lower in emerging P&C markets than in developed ones

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For the two main insurance sectors, life and property and casualty (P&C), overall industry and country risks are, on average, much lower in developed than in emerging markets, reveals Standard & Poor’s in a new report.

“What is noticeable is that industry risk is lower in emerging P&C markets than in developed ones,” said S&P credit analyst David Laxton. “That’s because more favourable competitive dynamics in emerging markets have allowed for continued, strong profit margins, which have declined under competitive pressure in more mature markets.”

“Showing the highest industry risk is the global P&C reinsurance sector,” he added. “That’s because this sector assumes the high-severity risks, such as catastrophe risks, coming from the P&C insurance sectors. To cope with these risks, global reinsurers tend to be strongly capitalized and exhibit sophisticated enterprise risk management skills.”

S&P sees good profitability in emerging markets, together with positive premium growth and straightforward products with lower product risk. However, these advantages are partly offset by the generally less developed institutional frameworks.

Its assessments in developed countries show similar levels of risk for both the P&C and life sectors, and reflect highly competitive markets, modest growth, and the risks associated with complex products. However, markets in developed countries benefit from stable economic and legal systems and sophisticated financial sectors.