In addition to the pivotal role the financial crisis is playing in slowing insurer growth, S&P cited other challenges including global population shifts, natural catastrophes and government regulation. Over the next 10 years, S&P said property/casualty insurers "will adapt" to these challenges. But the ratings agency said it believes the industry will "have a hard time achieving rapid growth."
Policyholder coverage reductions, an increase in retentions and "negative premium
growth rates" in some industrialized countries are contributing to slow growth, New York-based S&P said. According to 2007 U.S. market data, the growth rate of the P/C industry was less than 1%. In 2008, S&P said the U.S. P/C insurance market declined by nearly 1%.
"Most developed insurance markets are relatively well-saturated with global and national insurers, as well as regional and local players competing for business," S&P analysts wrote. "As a result, we expect the majority of premium growth to come from outside the industrialized countries, with companies that have access to emerging markets or better distribution capabilities growing faster than other companies."
S&P said non-life premiums in emerging markets grew 10% to $196 billion in 2007 compared with 11% growth in 2006, citing a Swiss Reinsurance Co. sigma study. Non-life premiums in Latin America and the Caribbean increased by 8% in 2007, and insurers saw a 12% increase in central and eastern Europe.
In comparison, non-life premiums in North America, which represents 42% of the total global non-life insurance market, declined 1% in 2007 from a year earlier. Further, S&P found that non-life insurance markets in Western Europe and Japan also dropped, 0.2% and 1.6% respectively, in 2007 from 2006.
S&P said it expects P/C insurers to have a significant exposure to terrorism risks over the next decade. Analysts noted that despite government programs in several countries that will cap losses, insurers still will have to mitigate losses through reinsurance, better risk management, terms and conditions, and strong capital and earnings.
Bermuda's strong presence in the insurance market is another area S&P evaluated, considering insurers are looking for better access points to reach global markets and customers. S&P noted that other domiciles including, Dublin, Ireland; Dubai, United Arab Emirates; India; and London have increased their presence lately in the global market.
"S&P believes Bermuda will remain a key insurance market center…but as emerging markets grow, companies in Bermuda may increasingly look to access accounts and clients in these countries in pursuit of growth," analysts wrote.