Insurers’ high cost of capital is a major concern for ratings agencies, according to Standard & Poor’s Head of Research Asia-Pacific Michael Vine.

“Regulatory issues create some interest… but the key issue is the cost of capital,” he told the Actuaries Institute regulation conference in Sydney last week. “We also see high costs of compliance as a distraction for management.”

Europe’s Solvency II reform is creating the greatest uncertainty among insurers there, Mr Vine says.

“It is also creating uncertainty in Australia and New Zealand. But we do see regulation as a good thing, contributing to the financial strength of insurers.”

Australia is considered a strong regime for insurers, but capital costs and regulatory oversight can be a deterrent to trading here, he says.

Globally, low interest rates present a risk for insurers. “Lower market returns and regulatory issues were drivers in the European insurance sector.

“We have ongoing concerns about Europe, but Asia-Pacific has different issues compared with global risk. The exposure to low interest rates is a different risk, and we are seeing Asia as the growth driver in insurance.”