Risks facing global insurers are easing as interest rates begin to rise, economies show signs of recovery and European conditions improve, Standard & Poor’s (S&P) says.

About 81% of S&P ratings on insurers worldwide had a stable outlook at the start of last month, up from about 73% at the beginning of last year.

“The signs of improvement were there at the start of this year as interest rates gradually rose and sovereign issues were resolved in the eurozone, and that has continued mid-year,” Primary Credit Analyst Michael Vine told insuranceNEWS.com.au.

The global economy is gaining ground after uncertainty and instability in 2012/13.

The US is back on track after first-quarter concerns, while in Europe there is an “uneven and fragile” recovery.

Risks include an escalation of the Ukraine crisis or unexpected turbulence in China.

Ratings are still constrained in countries such as Spain, Italy, Portugal and Ireland, while a negative sovereign outlook on Japan may have implications for some insurers.

S&P says regulatory uncertainty is also creating strategic and operational challenges.

Detailed guidance on Solvency II regulations in Europe are expected later this year, new federal bodies are beginning to influence the US insurance market and arrangements are still unclear for systemically important financial institutions.

“The risks are in future years around cost and complexity, but we are suggesting it is affecting insurers’ strategic decisions now in terms of structure, asset allocation capital and financial metrics,” Mr Vine says.

“Making those decisions with regulatory uncertainty poses a problem.”

Global regulatory scenarios are less of an issue for Australian and New Zealand insurers, which operate in an environment that is closely aligned with proposed changes.

Reinsurer risks are increasing, with US property catastrophe rates forecast to fall again at the June and July renewals following drops of 10-15% for April 1 contract dates.

“Soft pricing in global reinsurance rates has benefitted the primary market, but we believe the ratings trend impact will be negative for the reinsurance sector after eight years of stability,” S&P says.