Nordic P&C insurers to keep focus on underwriting profitability – S&P

Nordic insurers face some tough challenges, including prevailing low interest rates and the evolving regulatory landscape, but the Nordic property and casualty (P&C) sector is expected to sustain its very strong focus on underwriting profitability, according to S&P Global Ratings. S&P said its rated P&C insurers are well positioned to cope with prevailing low yields and regulatory requirements, which have earnings power and solid capitalisation based on S&P’s capital model and Solvency II. S&P’s insurance industry and country risk assessments for the Nordic P&C sectors are low risk countries, apart from Iceland. Country risk is low or very low in Denmark, Finland, Norway, and Sweden, while Iceland’s country risk is moderate due to the volatile and concentrated domestic economy. S&P said it expects operational barriers for entrants to Nordic insurance markets to remain high and discourage foreign competitors, which it said was a key advantage for Nordic insurers. “We see their high cost efficiency, distribution setup and knowledge, and brands as the main safeguards against outside competition. The operational barriers are somewhat lower in Iceland, where using an intermediary would enable a non-Nordic insurer access, especially in the marine hull insurance sector,” said S&P. Market concentration remains high in all Nordic countries, which also strengthens the barriers to entry, said S&P. “Though still high, the least concentrated market is Denmark where the five largest companies gather 54% of premiums. The most concentrated is Finland where the three largest companies pull in 77%. In P&C, five companies together hold a 62% market share in Denmark, and three hold more than 80% in both Finland and Iceland. Most insurers are domestic companies, but pan-Nordic insurers are also among the regional market leaders,” the ratings agency said. In Norway, S&P noted that smaller insurers have shown a steady and gradual increase in market share from 8% in 2004 to 30% in 2016. These smaller insurers are mainly Norwegian companies, and many of them are well-known entities with operations in other financial services segments. In Denmark, the market share for the three largest P&C insurers fell from 53% in 2008 to 46% in 2016. S&P said it expects competition will continue, potentially affecting pricing and changing market dynamics. “We do not expect big changes in the overall Nordic market composition over the next two to three years. However, as seen in some countries, we believe the trend of increased fragmentation could continue,” it said. S&P concluded that, overall, it views the Nordic P%C insurance sector as less risky than many other European P/C insurance sectors. “Most of the larger Nordic players focus on profitability rather than growth, and we expect them to continue doing so in 2017-2019. Profitability remains strong in Denmark, Norway and Sweden, with the five-year average return on equity at 13%-23%, benefiting from strong underwriting margins,” said S&P. It added that the focus on profitability is mainly through cost efficiency, enhanced risk selection, and price increases in business lines where claims are increasing.

Nordic P&C insurers to keep focus on underwriting profitability – S&P

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