Life insurers’ product risk has been undermined by the continued poor performance in income protection, according to S&P Global Ratings’ annual sector outlook report.

Its Insurance Industry and Country Risk Assessment says income protection has been consistently recording losses for the past four years, despite multiple actions to improve the business line’s outlook, such as price rises, tightening terms, conditions and definitions and underwriting standards.

However, the industry’s relatively disciplined approach to asset liability management and investment management has helped to counter this weakness, resulting in lower interest rates and longevity risks, the report says.

S&P expects premium growth will be subdued over the next year, in line with inflation. However, the extent of the impact of the Government’s proposed insurance in superannuation reforms is unknown.

Insurance in superannuation accounts for approximately 40% of total premium risk inflows.

The ratings agency warns insurers not to raise premiums too aggressively if the proposals go ahead, because it will discourage people from keeping their coverage.