S&P Releases Report on Australian Insurers

Standard & Poor’s has released a report on the life and nonlife insurance sectors in Australia that concludes the two are facing “very different operating environment dynamics in 2003.” It is the rating agency’s first industry report card that looks at credit quality factors in Australian insurers.

“Nonlife insurers are enjoying a period of unprecedented premium rate increases and popularity among some market investors,” stated Kate Thomson, S&P credit analyst Financial Services Ratings group. “But life insurers without strong parentage continue to suffer from weak market conditions and trade at historic lows.”

The report concluded that earnings prospects are positive in the P/C sector. “The market is continuing to accept premium rate rises, and insurers are heightening underwriting standards and benefiting from expense efficiencies largely through scale economies,” Thomson indicated. The report said that, “in the absence of a major catastrophe, profitability should remain robust.”

S&P found, however, that life insurers continue to endure a difficult operating environment. “Although nonlife insurance participants have taken drastic steps to reduce their exposure to equity markets, the fortunes of life insurers are inextricably tied to investment market sentiment by virtue of the nature of products they provide,” said the bulletin. “Although investment markets are showing some improvement, consumer sentiment remains weak. The recovery of business inflows to the life sector is expected to lag for the investment market-related life products offered by life and funds management companies.”

“Industry Report Card: Insurance — Australia” is available on RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com. The report card can also be found on Standard & Poor’s Web site at: www.standardandpoors.com.au. Click Credit Ratings and then “Commentary & News”. Members of the media can obtain copies of the reports by contacting Sharon Beach at (61) 3-9631-2152 or by E-mail at sharon_beach@standardandpoors.com.