Varying constraints continue to pin back the financial profiles of many global multiline insurers (GMIs), said Standard & Poor’s Ratings Services’ in a recent report published : “Global Multiline Insurers: Improving Prospects For Property/Casualty Contrast With Life And Investment Performance Uncertainties.”
“By business line, property/casualty insurers are showing improving performances owing to benign catastrophe activity since the beginning of 2012–after 2011’s large catastrophe losses–and price discipline,” said Standard & Poor’s credit analyst Lotfi Elbarhdadi, “and most life and savings oriented players, however, will likely continue to operate under difficult and uncertain conditions.”
Costly investment-related business lines and guarantees, such as general account savings, traditional life, or variable annuities have been a drag on GMI earnings and testing their capital management over the past four years. We think this is likely to continue under our base-case scenario for 2012 and 2013. The cost of guarantees and cost of capital, coupled with pressure on GMIs’ capital sources, will likely prompt GMIs to increasingly shift volumes toward fee-based business. In addition, risk products such as protection and health should be among the main areas of strategic focus in coming years.
Excluding any exceptional catastrophe activity, we anticipate that GMIs will record improved property/casualty (P/C) underwriting earnings in 2012 compared with 2011. Most players should benefit from generally increasing pricing, although recent price hikes have disproportionally favoured the property segment in general, specifically in the regions that experienced large catastrophe losses in 2011.
In our opinion, exposure to Southern European sovereign debt, market volatility, and dampened economic prospects in the European Economic and Monetary Union (EMU, or the Eurozone) remain a threat to some GMIs we rate, particularly those that are Europe-based.
We continue to view risk-adjusted capital adequacy, according to our criteria, as a weakness relative to the ratings on some GMIs.