Competition could slash Singapore insurer numbers, S&P predicts
Competition could slash Singapore insurer numbers, S&P predicts
SINGAPORE (Reuters): Unsustainable competition, falling premium rates and shrinking investment earnings will slash the number of insurers operating in Singapore, ratings agency Standard & Poor's (S&P) said on Monday.
"In reality, you could halve the number of participants and still have a very competitive environment that would give choice," Ian Thompson, Asia Pacific managing director of S&P's insurance group, told a news conference.
"Companies are experiencing a decline in earnings, are experiencing a decline in underwriting standards and are unable to compensate that on the investment account because of the volatile markets," he said.
Thompson said Singapore's 14 life and 53 non-life insurers were involved in "fierce and unsustainable" competition in a highly fragmented market.
"We believe that if these competitive issues remain unchecked it will begin to call into question whether the market can viably support the number of participants that it enjoys at the moment," he said.
Thompson gave his assessment as he released S&P's first review on the crowded city-state's insurance market, which included seven new public information (pi) ratings for life and non-life players.
Asia Life Assurance Society Ltd, Axa Insurance Singapore Pte Ltd, a unit of France's Axa SA, Great Eastern Life Assurance Co Ltd, Keppel Insurance Pte Ltd and Overseas Assurance Co Ltd were all awarded BBBpi ratings for their financial strength.
NTUC Income Insurance Co-op Ltd and Prudential Assurance Co Singapore Pte Ltd, a unit of Britain's Prudential Plc were both awarded 'Api' ratings.
A rating of BBB or higher indicates financial security characteristics that outweigh vulnerabilities. Insurers are highly likely to have the ability to meet financial commitments.
Thompson said the ratings were testimony to the generally strong insurer balance sheets in Singapore, but that there was no room to be complacent about their financial strength.
"There are losses on the horizon," he said, adding that the ratings had to be considered in the context of a very small, overcrowded market.
He said underwriting losses on the non-life account would begin to show through, while life insurers would be faced with cutting policyholder bonus rates to remain profitable.
Some insurers had begun to cut costs and restructure, but for many this would merely stave off the inevitability of consolidation.
"I believe that parent companies will increasingly be looking at the returns their subsidiaries are providing and...I think they will find them wanting," Thompson said.
But he said the analysis was not a doom and gloom scenario, but part of the natural dynamic of financial markets.
"A healthy financial market is one that allows entrants to come into the market and exit in an orderly fashion. Singapore is not alone in being highly competitive," he said.