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Insurance Industry And Country Risk Assessment Update: March 2021

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Insurance Industry And Country Risk Assessment Update: March 2021

This article presents S&P Global Ratings' insurance industry and country risk assessments (IICRAs) for 103 insurance sectors covering 53 countries and four global sectors (see tables 2-6). We review these IICRAs by applying our criteria "Insurers Rating Methodology," published July 1, 2019. In addition, the article lists the top key risks of each sector, which we classify in 10 different categories:

Table 1

Top Key Risks
Risk Category Description
Investment performance risk Capturing financial markets risks, including interest rates, mark to market, and asset quality.
Exposure to high-risk assets High-risk assets typically include equities (listed and unlisted), real estate, fixed-income investments or deposits in institutions that are rated 'BB+' or lower, and unrated bonds and loans.
Country risk Risk factor taking into account considerations such as macroeconomic risk, sovereign rating limitations, geopolitical, and rule of law risks.
Intense competitive environment Whether the market is concentrated with a few players or contains a high number of smaller ones, an intense competitive environment could lead to price wars and hurt profitability.
Muted market growth prospects The lack of potential for premium growth in a market, either because it is mature or due to adverse macroeconomic conditions, with high inflation resulting in near-zero (or negative) real growth.
Weak technical results An industry where technical performance, typically measured by combined ratios (non-life) and return on assets (life) is loss-making.
Exposure to natural catastrophes Markets with material exposure to climate risk, notably earthquakes, hurricanes, and other natural disasters.
Litigious legal system A sector where litigation often leads to lengthy court cases, increasing the tail of an insurer's liabilities, and consequently, resulting in unpredictable claims settlements.
Government and regulatory policy risks Markets exposed to changes in government or regulatory policies, often resulting in material impacts on insurers' business models and/or profitability.
Foreign exchange impact Reflects the impact foreign exchange risks could have on profitability.
Other Risk classification that does not fit any of the 10 categories described above.
Where risks do not fit any of these categories, we have selected other.

Latest Actions

Since our last publication ("Insurance Industry And Country Risk Assessment Update: November 2020," published Nov. 17, 2020), we have:

  • Revised the Czech Republic's life industry risk assessment to moderately low from low. While the Czech life sector enjoys strong and stable profitability, we consider that industry risk has slightly increased in recent years because old unit-linked policies which had high sales commissions and high liquidation fees now face some legal and reputational risks. We believe this may constrain the market's growth prospects. In addition, if court rulings are adverse for the industry, we could see some performance volatility for the players most exposed to these policies.
  • Revised our industry risk assessment on Jordan's property/casualty (P/C) sector to moderately high from moderately low. This is largely due to our expectations of net combined ratios of around 100%-103% over 2021-2022, combined with relatively weak real premium growth rates. Nonetheless, we anticipate the sector will likely post a technical profit in 2020, as strict lockdown measures in Jordan translated into improved loss ratios on the dominant retail (motor and medical) lines.
  • Assigned a high risk IICRA to Uzbekistan's P/C sector. This reflects Uzbekistan's still weak but gradually developing institutional framework, notably after the government set up an insurance regulatory authority in the second half of 2019. We expect to see profits in the coming year despite the economic effects of the pandemic on the sector. P/C insurers are likely to show muted growth prospects in 2020 because of slower economic activity, but expect more robust growth in 2021-2022, which will largely depend on further regulatory initiatives, the introduction of new products, and positive macroeconomic dynamics.
  • Withdrawn the South Africa health IICRA.

In this report, we also publish our assessment of the country and industry risks to which insurers are exposed.

About Insurance Industry And Country Risk Assessments

An insurer's business risk profile forms one of the key components of our rating analysis. It measures the risk inherent in the insurer's operations, which affects the sustainable return that may be derived from those operations. The business risk profile is based on our analysis of an insurer's competitive position, modified to incorporate the industry and country risks to which a specific insurer is exposed.

Each IICRA addresses the risks typically faced by all the insurers that operate in a specific industry and country. To determine the IICRA, we apply our "Country Risk Assessment Methodology And Assumptions," published Nov. 19, 2013, to assess country risk, and then modify it according to our view of industry risk. We assess country risk on a scale from strongest (very low risk) to weakest (very high risk).

We assess industry risk on a four-point scale from low to high. Our analysis of industry risk addresses the level, volatility, and sustainability of profitability in a given industry sector. The primary factor in our industry risk analysis is an assessment of prospective profitability, supplemented by a holistic analysis of factors that, in combination, are likely to either support or threaten industry profitability prospects, such as barriers to entry, market growth prospects, product risk, and the institutional framework.

The impact of IICRAs on our ratings varies according to the degree of risk. The higher the risk, the greater the adverse impact on the business risk profile. The risks are categorized as 1-very low, 2-low, 3-intermediate, 4-moderately high, 5-high, or 6-very high.

Within each country, if applicable, we separately assess the life and P/C sectors. Where it has a distinct legal and regulatory framework, we also assess the health sector separately. In addition, in certain countries, we assess the insurance industry and country risk for the bond, mortgage, and title insurance sectors.

Some sectors are more naturally global, because insurers in those sectors typically write business in multiple countries around the world. Consequently, we assess IICRAs globally for life reinsurance, P/C reinsurance, trade credit insurance, and marine protection and indemnity insurance.

Chart 1

Very High Risk     High Risk     Moderately High Risk     Intermediate Risk     Low Risk     Very Low Risk     No Assessment

Chart 2

Very High Risk     High Risk     Moderately High Risk     Intermediate Risk     Low Risk     Very Low Risk     No Assessment

Table 2

Property/Casualty Insurance Industry And Country Risk Assessments On March 1, 2021
Country Risk Industry Risk IICRA Top Risk 1 Top Risk 2 Top Risk 3
Angola Very high High Very high Muted market growth prospects Weak technical results Investment performance risk

Argentina

Very high High Very high Country risk Muted market growth prospects Investment performance risk

Australia

Very low Low Low Exposure to natural catastrophes Muted market growth prospects Investment performance risk

Austria

Low Moderately low Low* Intense competitive environment Exposure to natural catastrophes Investment performance risk

Azerbaijan

High Moderately high High Investment performance risk Muted market growth prospects Country risk
Bahrain High Moderately low Moderately high* Country risk Intense competitive environment Investment performance risk

Belgium

Low Moderately low Intermediate Intense competitive environment Exposure to natural catastrophes Investment performance risk

Brazil

Moderately high Moderately low Moderately high Muted market growth prospects Country risk Investment performance risk

Canada

Very low Moderately low Low Muted market growth prospects Exposure to natural catastrophes Investment performance risk

China

Moderately high Moderately low Intermediate* Intense competitive environment Exposure to high risk assets Weak technical results

Colombia

Moderately high Moderately high Moderately high Weak technical results Country risk Muted market growth prospects
Czech Republic Intermediate Moderately low Intermediate Government and regulatory policy risks Intense competitive environment Exposure to natural catastrophes

Denmark

Very low Low Low Investment performance risk Exposure to high risk assets

Finland

Very low Low Low Investment performance risk Exposure to high risk assets

France

Low Moderately low Intermediate Intense competitive environment Government and regulatory policy risks Investment performance risk

Germany

Very low Moderately low Low Intense competitive environment Exposure to natural catastrophes Investment performance risk

Hong Kong

Low Moderately low Low* Intense competitive environment Muted market growth prospects Government and regulatory policy risks

Ireland

Low Moderately high Intermediate Litigious legal system Intense competitive environment Exposure to high risk assets
Israel Intermediate Moderately low Intermediate Investment performance risk Intense competitive environment Government and regulatory policy risks

Italy

Moderately high Moderately low Intermediate* Country risk Government and regulatory policy risks

Japan

Low Moderately high Intermediate Exposure to high risk assets Exposure to natural catastrophes Muted market growth prospects
Jordan High Moderately high Moderately high* Country risk Weak technical results

Kazakhstan

High Moderately low Moderately high* Country risk Muted market growth prospects Investment performance risk
Kenya High High High Muted market growth prospects Weak technical results Exposure to high risk assets

Korea

Low Moderately low Intermediate Investment performance risk Weak technical results Intense competitive environment

Kuwait

Moderately high Moderately low Intermediate* Government and regulatory policy risks Exposure to high risk assets Country risk
Malaysia Intermediate Moderately low Intermediate Muted market growth prospects Intense competitive environment Government and regulatory policy risks

Mexico

Moderately high Moderately low Intermediate* Country risk Investment performance risk Foreign exchange impact
Morocco Moderately high Moderately low Moderately high Weak technical results Foreign exchange impact Investment performance risk

Netherlands

Very low Moderately high Intermediate Intense competitive environment Exposure to natural catastrophes Investment performance risk

New Zealand

Low Moderately low Intermediate Exposure to natural catastrophes Investment performance risk Muted market growth prospects

Norway

Very low Low Low Investment performance risk Exposure to high risk assets
Poland Moderately high Moderately low Moderately high Intense competitive environment Country risk Exposure to natural catastrophes
Portugal Intermediate Moderately low Intermediate Weak technical results Investment performance risk

Qatar

Intermediate Moderately low Intermediate Exposure to high risk assets Weak technical results Country risk

Russia

High Moderately high High Muted market growth prospects Country risk Investment performance risk

Saudi Arabia

Moderately high Moderately low Intermediate* Country risk Intense competitive environment Government and regulatory policy risks
Singapore Very low Low Low Intense competitive environment Muted market growth prospects Weak technical results

Slovenia

Intermediate Moderately low Intermediate Other Exposure to natural catastrophes Muted market growth prospects

South Africa

Moderately high Moderately low Moderately high Muted market growth prospects Country risk Foreign exchange impact

Spain

Intermediate Low Low* Investment performance risk Other Government and regulatory policy risks

Sweden

Very low Low Low Investment performance risk Exposure to high risk assets
Switzerland Very low Low Very low* Other Foreign exchange impact Investment performance risk

Taiwan

Intermediate Low Intermediate Exposure to natural catastrophes Investment performance risk Intense competitive environment
Thailand Moderately high Moderately low Intermediate* Exposure to natural catastrophes Intense competitive environment Muted market growth prospects
Turkey High Moderately high High Weak technical results Foreign exchange impact Country risk

United Arab Emirates

Intermediate Moderately low Intermediate Exposure to high risk assets Intense competitive environment Country risk

U.K.

Low Moderately high Intermediate Litigious legal system Government and regulatory policy risks Country risk

U.S.

Very low Moderately high Intermediate Litigious legal system Investment performance risk Exposure to natural catastrophes

Uzbekistan

High High High Exposure to high risk assets Country risk Government and regulatory policy risks
*Indicates those where the IICRA is one category lower than the IICRA indicated in table 5 in Insurers Rating Methodology.

Table 3

Life Insurance Industry And Country Risk Assessments On March 1, 2021
Country Risk Industry Risk IICRA Top Risk 1 Top Risk 2 Top Risk 3
Australia Very low Moderately low Low Weak technical results Government and regulatory policy risks Intense competitive environment

Austria

Low Moderately high Intermediate Country risk Investment performance risk Muted market growth prospects

Belgium

Low Moderately high Intermediate Investment performance risk Government and regulatory policy risks

Brazil

Moderately high Low Intermediate Muted market growth prospects Country risk Investment performance risk

Canada

Very low Moderately low Very low* Country risk Investment performance risk Weak technical results

China

Moderately high Moderately low Intermediate* Investment performance risk Exposure to high risk assets Weak technical results

Colombia

Moderately high Moderately high Moderately high Investment performance risk Country risk Muted market growth prospects
Czech Republic Intermediate Moderately Low Intermediate Government and regulatory policy risks Muted market growth prospects Country risk

Denmark

Very low Moderately high Intermediate Investment performance risk Exposure to high risk assets

Finland

Very low Moderately high Intermediate Investment performance risk Exposure to natural catastrophes

France

Low Moderately low Low* Investment performance risk Government and regulatory policy risks

Germany

Very low Moderately high Intermediate Country risk Investment performance risk

Hong Kong

Low Low Low Other Investment performance risk Weak technical results
Israel Intermediate Moderately low Intermediate Investment performance risk Other

Italy

Moderately high Moderately low Intermediate* Country risk Investment performance risk
Jamaica High Moderately high High Investment performance risk Country risk Government and regulatory policy risks

Japan

Low Moderately low Intermediate Exposure to high risk assets Investment performance risk Intense competitive environment

Kazakhstan

High Moderately low Moderately high* Investment performance risk Foreign exchange impact Country risk

Korea

Low Moderately high Intermediate Investment performance risk Weak technical results Intense competitive environment
Malaysia Intermediate Low Intermediate Investment performance risk Muted market growth prospects Government and regulatory policy risks

Mexico

Moderately high Low Intermediate Muted market growth prospects Investment performance risk Country risk

Netherlands

Very low Moderately high Intermediate Investment performance risk Exposure to high risk assets Muted market growth prospects

New Zealand

Low Low Low Muted market growth prospects Government and regulatory policy risks Intense competitive environment

Norway

Very low Moderately high Intermediate Investment performance risk Exposure to high risk assets Country risk
Oman Moderately high Moderately low Moderately high Country risk Investment performance risk Muted market growth prospects

Poland

Moderately high Moderately high Moderately high Country risk Litigious legal system Muted market growth prospects
Portugal Intermediate Moderately high Moderately high Weak technical results Investment performance risk Intense competitive environment
Singapore Very low Low Low Investment performance risk Weak technical results Muted market growth prospects

Slovenia

Intermediate Moderately low Intermediate Country risk Muted market growth prospects Investment performance risk

South Africa

Moderately high Moderately low Moderately high Weak technical results Country risk Muted market growth prospects

Spain

Intermediate Moderately low Intermediate Other Country risk Investment performance risk

Sweden

Very low Moderately high Intermediate Investment performance risk Exposure to high risk assets
Switzerland Very low Moderately low Low Foreign exchange impact Investment performance risk

Taiwan

Intermediate Moderately high Moderately high Investment performance risk Foreign exchange impact Muted market growth prospects
Thailand Moderately high Moderately low Intermediate* Investment performance risk Weak technical results Muted market growth prospects

U.K.

Low Moderately low Low* Investment performance risk Intense competitive environment Country risk

U.S.

Very low Moderately low Low Investment performance risk Weak technical results Country risk

Uruguay

Moderately high Moderately low Moderately high Country risk Muted market growth prospects Investment performance risk
*Indicates those where the IICRA is one category lower than the IICRA indicated in table 5 in Insurers Rating Methodology.

Table 4

Health Insurance Industry and Country Risk Assessments On March 1, 2021
Country Risk Industry Risk IICRA Top Risk 1 Top Risk 2 Top Risk 3

Australia

Very low Moderately low Low Government and regulatory policy risks Muted market growth prospects Weak technical results

Brazil

Moderately high Moderately high Moderately high Weak technical results Muted market growth prospects Country risk

Germany

Very low Moderately high Intermediate Country risk Government and regulatory policy risks Investment performance risk

Netherlands

Very low Moderately high Intermediate Weak technical results Country risk Exposure to high risk assets

New Zealand

Low Moderately high Intermediate Muted market growth prospects Weak technical results Intense competitive environment

U.S.

Very low Moderately low Low Weak technical results Government and regulatory policy risks Intense competitive environment

Table 5

Global Sectors Industry And Country Risk Assessments On March 1, 2021
Country risk Industry Risk IICRA Top Risk 1 Top Risk 2 Top Risk 3
Global Reinsurance Life Low Low Low Weak technical results Investment performance risk Government and regulatory policy risks

Global Protection And Indemnity

Low Moderately high Intermediate Weak technical results Intense competitive environment
Global Reinsurance Property/Casualty Low Moderately high Intermediate Litigious legal system Investment performance risk Weak technical results
Global Trade Credit Low Moderately low Intermediate Weak technical results Other Muted market growth prospects

Table 6

Other Sectors Industry And Country Risk Assessments On March 1, 2021
Country Risk Industry Risk IICRA Top Risk 1 Top Risk 2 Top Risk 3

Australia Mortgage Insurance

Very low Moderately high Intermediate Weak technical results Muted market growth prospects Other
Canada Mortgage Insurance Very low Moderately high Intermediate Country risk Muted market growth prospects Other
U.S. Mortgage Insurance Very low Moderately high Intermediate Country risk Other Muted market growth prospects

U.S. Bond Insurance

Very low Low Low Country risk Muted market growth prospects Investment performance risk

U.S. Title Insurance

Very low Moderately low Low Weak technical results Muted market growth prospects Investment performance risk

Related Criteria

Related Research

This report does not constitute a rating action.

Primary Credit Analysts: Ali Karakuyu, London + 44 20 7176 7301;
ali.karakuyu@spglobal.com
Mario Chakar, London + 44 20 7176 7070;
mario.chakar@spglobal.com
Research Contributor: Kai B Mirza, London + 44 20 7176 3980;
kai.mirza@spglobal.com

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