Australia’s life insurance industry is holding its rating level while key Asia-Pacific markets have been downgraded by Standard & Poor’s (S&P) as a result of weakening economic conditions and volatile investment markets.

The latest S&P Sector Review keeps the Australian life industry on its stable credit outlook setting along with New Zealand, Hong Kong, Malaysia, Thailand and Singapore, while China and Taiwan have been downgraded to negative, Korea moves down a peg from positive to stable and Japan’s 2011 negative rating is maintained.

The region as a whole is in danger of being downgraded, with the report saying economic and investment market factors “are adversely affecting growth momentum, weakening capitalisation and hampering earning prospects to varying degrees in the region”.

“Our expectation is such that our stable credit outlook for the Asia-Pacific life insurance sector is moving towards a negative bias,” the report says.

Australia receives a mixed review from S&P, with the report saying the industry is achieving double-digit growth for risk business fuelled by underinsurance in life risk products and the cross-selling opportunities created by compulsory superannuation.

But it warns investment market volatility remains a threat.

S&P says Australian life insurance premium income is somewhat softer than last year, with the economy weakening and leading to a rise in income protection claims. The ratings agency expects these softer market conditions to continue.

The rapid growth of China’s life insurers in combination with capital market volatility has weakened their capitalisation levels, which may lead to less than adequate capitalisation if the economy suffers a hard landing, the report says. 

S&P says the Chinese life industry needs to shift to higher margin regular premium products from low-margin single premium products to strengthen its position, but this would result in lower premium growth in the short term.

The long-term outlook for China is strong, driven by economic growth and low insurance penetration. However, S&P expects China’s short-term growth to be weaker.

It says the New Zealand life sector is experiencing stability in industry ownership. Modest growth for life products is coming from a high level of underinsurance compared to other developed countries.