Australia’s life industry is rated “very low risk” in Standard & Poor’s (S&P) latest Insurance Industry and Country Risk Assessment.

The score reflects the sector’s low industry risk and Australia’s very low country risk.

The “very low risk” score is the strongest on a scale of six. The only other country to achieve this in the life sector is Canada.

S&P credit analyst Lucy Huynh says the life industry is expected to maintain its good profitability over the medium term.

“Based on regulatory data, primary insurers in the sector have consistently delivered weighted-average returns on equity of 10% or more over the past five years.

“That’s despite some recent weaker claims experience and lapses in disability income and group risk lines.”

The report says the industry’s institutional framework is very strong, with “no evident deficiencies in governance and transparency”.

Australia’s country risk rating is based on economic risk, political risk, financial system risk, payment culture and rule of law.

“Australia’s diversified, high-income and resilient economy supports the development and operation of its life insurance sector,” the report says.

The country’s GDP growth is expected to slow to 2.6% this year from 3.4% last year, as mining investment peaks.

But it should improve to 3% next year and in 2015, as other sectors gradually strengthen, supported by low interest rates.

“We consider that premiums will at least match GDP growth in the medium term, supported by solid population growth, an ageing population, mandatory super contributions and existing underinsurance,” the report says.