Low interest rates, Solvency II keep pressure on insurers, reinsurers: S&P
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LONDON — A prolonged period of low interest rates in many economies of the world will continue to add to pressure on insurer and reinsurer earnings in the near term, according to Standard & Poor's Corp.
At a briefing in London Wednesday, S&P analysts said that increased risk aversion from regulators around the world also is adding to the challenges faced by insurers and reinsurers.
Regulatory developments overall such as the upcoming Solvency II risk-based capital rules slated for introduction in Europe in 2016 will increase pressure on smaller insurers and reinsurers in particular and may result in an uptick in consolidation, said Rob Jones, a managing director at S&P in London.
It is currently unclear what the effect will be on the nine insurers classified by the International Association of Insurance Supervisors as globally systemically important, noted Mr. Jones, though some may be able to exploit that status as a marketing tool to the benefit of their business.
A supply and demand imbalance is affecting global reinsurers, noted Mark Button, a senior director at S&P in London, with the influence of new investors in catastrophe bonds and other non-traditional vehicles resulting in the increasing commoditization of property catastrophe business, noted Mr. Jones.
At the same time, he said, many cedents are reducing their reinsurance spend and cutting down the number of reinsurance counterparties with which they do business.
The analysts were discussing two S&P reports published Wednesday: “Global Insurance Credit Outlook: Policymakers Prolong Pain For Developed Markets' Insurers,” and “European Insurance Credit Outlook: As Solvency II Looms, Low Interest Rates Increase The Heat.”
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