S&P Report Urges ‘Disaster Resilience’ with Governments for Reinsurers’ Growth

August 28, 2014

Standard & Poor’s Rating Services announced the publication of its “Global Reinsurance Highlights” to coincide with the 2014 Reinsurance Rendezvous in September. S&P described the report as providing “a detailed perspective on the market, focusing on the competitive pressures that will impede reinsurers’ ability to generate strong returns, and challenges for the sector to reinforce its relevance to existing and future clients as the global economy continues to evolve.”

S&P said a companion article published today – “Working With Governments To Increase Disaster Resilience Can Open New Doors For Reinsurers -” offers an “element of the overall picture to be provided in the publication by offering a view of how reinsurers can reinforce their relevance to the global economy and play a role in building governments’ resilience to the financial shocks associated with natural catastrophes.”

The report highlights the “rising tide of losses in the wake of natural catastrophes, which it said is “increasing economic instability in many developing economies.” In some cases, “extreme events in large developed and developing markets could not only derail the growth of that economy, but could also cause a ripple effect, affecting the global economy,” S&P continued.

As a result S&P said “developing a market for these products will help reinsurers reinforce their relevance to new clients and new risks should lead to a stronger insurance market and increased insurance penetration (measured as insurance premium as a percentage of GDP).”

As part of a recent report on climate change and its impact on sovereign ratings, S&P explained that its “analysis indicated that emerging economies are more vulnerable to extreme weather events (see “Climate Change Is A Global Mega-Trend For Sovereign Risk,” published on May 15, 2014).

“The debate is ongoing as to whether or not climate change is already causing the frequency of severe events to increase. However, extreme weather events are occurring more often, and economic losses are increasing as populations and wealth grow. Our research shows that each of the top 20 most vulnerable nations are emerging markets, and the average insurance penetration (insurance premium as a percentage of GDP) in these countries, at 0.9 percent, is less than half of the global average (2.1 percent).

In our view, government-backed insurance solutions, supported by the global reinsurance industry, could provide some protection and stability to government budgets, mitigating the potential for instability and growth retardation.”

S&P also noted that under its stated policy “only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.

Source: Standard & Poor’s

Topics Reinsurance

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