S&P's Insurance Industry And Country Risk Assessments Offer A Global View Of The Forces Shaping Insurance Markets
Earlier this month, we assigned for the first time Insurance Industry and Country Risk Assessments to 97 insurance sectors worldwide. We use the assessments as a factor in rating insurance companies, and have designed them to provide us and market participants with a comparative and global view of insurance risk across sectors, regions, and countries. Though not entirely surprising, the most striking conclusion for the two main sectors, life and property/casualty, is that the overall risks are, on average, much lower in developed than in emerging markets. What is also noticeable is that industry risk is lower in emerging P/C markets than in developed ones. That's because more favorable competitive dynamics in emerging markets have allowed for continued strong profit margins, which have declined under competitive pressure in more mature markets.
Our base-case scenario for rated Latin American nonbank financial institutions (NBFIs) is positive, with the exception of Argentina-based entities. The main economic drivers for the Latin American NBFIs are availability and cost of funding sources, dependence on capital markets, and global business cycles, which directly affect the demand for credit and household debt. NBFIs include multipurpose finance companies and limited purpose finance companies, such as leasing companies, warehouses, and general lenders. They also include pawnshops and payroll lenders, among other types of financial intermediaries. Despite the global economic slowdown, Latin American economies have been fairly resilient. According to our latest economic analysis, we forecast a regional GDP growth of 3.2% in 2013 (down from 3.5% in the first quarter of the year) and 3.4% in 2014. The slight change is due to signs of an uneven recovery and slower growth in Brazil.
The ratings on Rome primarily reflect our long-term rating on Italy. We assess Rome's indicative credit level (ICL) at 'aa-'. The ICL is not a rating but a means of assessing the intrinsic creditworthiness of local and regional governments (LRGs), assuming that there were no sovereign rating cap. The ICL of 'aa-' reflects the province's positive financial management, very strong budgetary performance, strong and resilient economy and very positive liquidity. Rome's still high (although declining) tax-supported debt and moderate financial flexibility, due to decreasing leeway to raise taxes, partly offset these positives. The ICL is supported by a powerful economy that fuels Rome's tax bases.
The ratings on Uruguay reflect its stable political system, strong public institutions, favorable medium-term growth prospects, and improving debt profile, all of which reduce its vulnerability to external shocks. The ratings also reflect rigidities due to a still high level of dollarization, limited fiscal and monetary flexibility, and vulnerability to commodity price swings and adverse economic trends in the region. Eleven years of continued GDP growth should boost Uruguay’s per capita GDP above US$16,000 in 2013. Rising prosperity and improving social indicators augur well for political stability and continuity of key economic policies beyond the election cycle.
American International Group Inc. And Core Subsidiaries Affirmed Following Insurance Criteria Change
The ratings reflect the group's very strong business risk profile (BRP) and strong financial risk profile (FRP), built on a very strong competitive position and very strong capital and earnings. We assess AIG's insurance industry and country risk assessment (IICRA) as intermediate, given our view of low country risk and intermediate and low industry risks for its non-life and life insurance operations, respectively. Our view of AIG's low country risk reflects the relative stability of economic risk, effective and stable political institutions, sophisticated financial systems, and strong payment culture in the countries in which AIG predominantly operates.
China has yet to lose its shopping bug. Department stores continue to open up around the country, and now contribute a significant share of retail sales. But Chinese operators face tougher times ahead with slower growth. Competition is building among players and from a rising number of different retail formats, including online buying. How would Chinese department stores fare in this increasingly more competitive environment? Department stores must also contend with shifting economic factors--the most immediate being private consumption. China's government realizes that it cannot rely solely on investments to push the world's second-largest economy. It pledged last month to boost domestic consumption after growth fell slightly in the first quarter of 2013. If the government follows through, that again is positive for department stores.
The outlook revision reflects good credit measures and positive operating prospects, which if sustained, could support a higher rating. Acuity's operating performance will remain tied to demand in U.S. new commercial construction and renovation markets. We expect improving, if still fragile, new construction activity over the next two years, which should support revenue growth in the mid-single-digit area. In addition, a disciplined approach to external growth and shareholder distribution has resulted in credit metrics that are better than our expectations for the rating. Acuity designs, produces, and distributes indoor and outdoor lighting fixtures and related products for industrial, infrastructure, residential, commercial, and institutional applications.
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